Here are the top likely market movers for the coming week. We start with the usual epicenter the great financial crisis ever since December 2009, the EU.

1. SPAIN: BAILOUT RELATED NEWS

As we’ve noted repeatedly over the prior weeks, in keeping with Washington’s request as reported by Reuters, we expect relative quiet from the EU until after the November 6th elections. Still, that didn’t stop Spain bailout related news from being a top market mover last week, as we noted in our earlier post, PRIOR WEEKS’ TOP MARKET MOVERS’ 4 KEY LESSONS FOR THIS WEEK.

As noted in that article, we question the belief of many that after the October 21 regional elections, Spain would cooperate with the EU and make the aid request needed to activate the ECB’s OMT plan to buy Spain bonds and remove default risk for at least the coming months. There is plenty of room for further delays, which could scare markets and send them lower as Spain and the EU (really, Germany) continue to engage in brinksmanship and risk another bout of EU crisis. See the above article for details.

Ironically, although markets crave a Spain bailout because it theoretically removes Spain default risk in the coming months, it utterly fails to meet our criteria for being even a step in the right direction for the EZ. See7 CRITERIA FOR DISTINGUISHING REAL EU CRISIS SOLUTIONS FROM FAKES.

Like all the other EU ‘solutions,’ this one just adds more debt to a nation that cannot repay its current obligations, and so it just buys some time at a potentially enormous cost of making the eventual default that much more damaging (greater real losses, greater debasement of the euro as it’s printed in greater quantities to repay nominal amounts owed, a crippling credit crunch as EU borrowing rates soar to compensate for being repaid in debased euros, etc.)

2. SPAIN: ELECTION RESULTS

Also as noted in PRIOR WEEKS’ TOP MARKET MOVERS’ 4 KEY LESSONS FOR THIS WEEK, there’s a real risk that these elections, and another in Catalonia, suddenly make the assumed coming bailout less likely. There are many other potential obstacles, but markets are expecting this first one to be surmounted this week. If not, that adds bearish uncertainty about Spain’s future solvency.

3. RAMIFICATIONS OF EU SUMMIT RESULTS OR LACK THEREOF

Ok, no one expected much progress, but the EU’s inability to act decisively while it still has time again reminds us that it cannot be relied upon to act fast if the need arises, and raises the risks that the EU could lose control of the situation and cause yet another crisis from sheer lack of market confidence in the EU.

The US is the other likely source of major market moving events this week.

4. EARNINGS SEASON’S CLIMACTIC WEEK 3

After its third week, earnings season loses influence as the overall tone has been set, so this is the final and climactic week in which most of the remaining marquee names report.

Like the second week, it features many bellwethers in the financial, technology and industrial sectors. As expected, earnings are down year over year. Meanwhile, Q2’s trend of most companies beating earnings expectations but missing sales estimates has continued. That’s bad, because firms have largely exhausted the benefits of cost cutting in recent years, and need to show sustainable sales growth in order to convince markets they can sustain earnings growth and justify rising share prices.

Given its prominence and sheer sex appeal, Apple is the big name this week, but there are many others that could draw attention and move markets in the absence of bigger news. See any good earnings calendar for a listing of the most prominent sector leaders announcing each day.

5. FOMC MEETING, STATEMENT

The second big US event this week that could move markets is the FOMC policy meeting and statement issuance Wednesday. With unlimited QE already baked in, the statement could move markets if it offers new insights on:

• The Fed’s prognosis for the economy
• The pace and timing of its mortgage bond purchases

6. US NEW HOME SALES REPORT: SUDDENLY, IT REALLY MATTERS

Many, including the Fed, believe that healing the housing industry is key to healing the banking sector, and both are seen as critical foundations to a real US recovery. You know, one based on people actually becoming wealthier and spending money that they actually have or can afford to repay.

Indeed, the Fed is so convinced that QE 3 is essentially a mass purchase of mortgage backed bonds.

Many believe that QE 3 (and prior QE programs) were in fact just more stealth bailouts to prop up housing and the banks overloaded with bad mortgages). Consider:

• The US economy continues to struggle
• QE has not proven to be a cost effective way of creating jobs. For example, per San Francisco Fed Chief John Williams, the $600 bln QE 2 created 700,000 jobs, implying a staggering $857,142 spent per job created [$600,000,000,000 / 700,000 jobs].  I could be wrong, but I assume that each of these jobs will not pay $857K over the course of their existence in real terms.
• Meanwhile, the assorted stimulus programs have added trillions to our national debt, have weakened the USD, and have potentially expanded the money supply enough to keep the USD falling. Remember, 70% of US GDP is consumer spending, exports are a relatively small part of GDP, so a weak dollar hurts the US more than it helps.

While some point to the recent jump in housing starts as proof that the housing sector is recovering, others believe it’s bad news for housing because demand for new home sales isn’t keeping up with the implied coming supply, and that could mean yet another round of falling home prices, increasing foreclosures, and weak bank balance sheets loaded with bad mortgages.

So this week’s new home sales will provide the latest look at whether the housing starts data is a sign of recovery or yet more problems in the housing and banking sectors.

Indeed, although yet again we here much in the media that the critical housing sector has bottomed, there’s plenty of evidence that the sector is still a complete wreck, and in many places is getting worse. See here for details.

7. OTHER TIER 1 US DATA

Other key U.S. economic indicators to watch this coming week include durable goods orders for September on Thursday, Q3 GDP on Friday, as well as the final reading for October on consumer sentiment from the Thomson Reuters/University of Michigan surveys.

8. TECHNICAL RESISTANCE

As noted in PRIOR WEEKS’ TOP MARKET MOVERS’ 4 KEY LESSONS FOR THIS WEEK, most risk asset markets have encountered firm technical resistance for the past 6 weeks, despite the plethora of new easing/money printing programs from many leading central banks. Given that markets have rallied for the past months on little justification beyond anticipated new stimulus, and that stimulus is now largely old news, we don’t see where markets will get the fundamental data to fuel a break above current resistance, like the 1450 zone on the S&P 500, $117 for Brent crude, 1750 for the DAX index, or whatever your preferred risk appetite barometer.

9. PRECAUTIONARY PRE-FISCAL CLIFF SELLING

As noted in our earlier post, while it may be hard to get the timing of this, related to the firm technical resistance (as either cause, effect, or paradoxically both) is the temptation by many US investors to book profits in the coming weeks while the 15% capital gains tax remains in effect until December 31st.

10. OTHER CALENDAR EVENTS

In case it wasn’t already clear from the above, this is an unusually heavy calendar for the end of the month.

In addition to the above mentioned events, others worth watching include:

Wednesday

Australia: CPI

China: HSBC flash mfg PMI

Europe: Batch of mfg, services PMIs for France, Germany, and the EU, ECB President Draghi speaks

US: New Home Sales, FOMC statement

Thursday

UK: Preliminary GDP

US: Durable goods, pending home sales

Friday

US: Advance GDP, UoM consumer sentiment

See any good economic calendar for further details

THE SOLUTION WILL BECOME THE PROBLEM IF YOU’RE NOT CAREFUL

Here’s a parting thought to consider. Well. Really well.

1. There are so many dangers, the EZ debt crisis, slowing growth worldwide, the US fiscal cliff, the China slowdown, etc.

2. Yet risk asset markets remain relatively resilient despite the dangers.

Paradoxically, #1 is causing #2.

How can that be?

These threats are causing the largest central banks worldwide to engage in money printing on an unprecedented scale as a means of boosting their weakening economies. That money printing, or the anticipation of it, is causing of markets remaining at levels near their peaks before the Great Recession began in 2007.

In sum, money printing is both the official response to these threats AND the reason markets have stayed high.

Unfortunately, this solution is likely to become a huge problem, unless you’re protected.

One of the most likely results of this ongoing explosion of dollars, euros, yen, or other currencies from nations doing the same thing (typically to keep their exports competitively priced versus the falling currencies of their customers) is that your local currency, and anything you own that’s linked to it, is going to depreciate.

That means we all need to start diversifying into the more responsibly managed currencies or into assets denominated in them. For details on the best collection of the safer, simpler, less demanding ways to do this than generally found in guides to forex markets or to investing in foreign assets, just type “The Sensible Guide To Forex” into your search bar.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

THIS WEEK’S TOP 10 MARKET MOVERS: WHAT EVERYONE ABSOLUTELY MUST WATCH is a post from: Global Markets

Last week, the biggest market movers were bullish sentiment about Spain, both rising hopes for a bailout and its avoiding a credit downgrade from Moody’s, and overall bearish earnings reports that confirmed the global slowdown.

As we discuss below, the very fact that these were the prime market drivers is very significant.

One-Minute Weekly Summary

First, here’s how the week broke down.

Monday

Markets were overall higher on good data from China and the US, as well as on optimism about a coming Spain bailout and more stimulus from China. A Citigroup earnings beat and solid US retail sales also helped European and US stocks.

Tuesday

Asia, Europe, and US markets were all higher, primarily due to German comments expressing support for a “precautionary credit line” for Spain that wouldn’t carry the full stigma of a bailout, and thus be acceptable to Spain. Earnings beats from JNJ and GS also helped.

Wednesday

Markets were overall higher (despite weaker earnings from JNJ and Intel), mostly due to Spain avoiding a credit downgrade to junk from Moody’s and strong US housing starts.

Thursday

Markets were mixed as bullish news (China GDP meets forecasts, successful Spain bond auction, solid UK retail sales) balanced key earnings misses in Europe (Nestle) and the US (Google).

Friday

Disappointment on the EU summit and earnings sent markets lower, wiping out much of their gains for the week and leaving them only modestly higher.

LESSONS & SIGNIFICANCE: Overall Bearish Implications

As noted above, last week, the biggest market movers were bullish sentiment regarding Spain, and overall bearish earnings reports. Miscellaneous data points (like China meeting its reduced GDP forecasts and solid US retail sales) and EU crisis utterances had some short term effects, but news related to Spain and earnings were clearly the big market movers.

The fact that these were the top market movers suggests some dangers ahead for the coming weeks.

Here are the key lessons to keep in mind for the coming week.

1. Rising Risks Of Disappointment On Spain Bailout Delays Risk Pullback, Perhaps New Crisis

For weeks now, markets have risen on hopes that soon insolvency risk for Spain would disappear for the near future because once Spain’s regional elections were over on (October 21st), Spain would cooperate with the EU and make the needed aid request for the ECB’s OMT unlimited Spain bond buying program to start.

That hope could well be unrealistic.

The regional elections of October 21st in the Basque country and Galicia do signal an end to Madrid’s domestic political concerns. In less than 4 weeks there’s another important regional election in Catalonia. Remember that mere weeks ago we were hearing secession threats from Catalonia, as it resents subsidizing Spain’s poorer regions. So Rajoy may well not yet be ready to cooperate with the Catalonian elections coming up.

Meanwhile, time is working against Spain.

There are simply too many things that can yet go wrong and ignite another bout of EU anxiety about the ultimate solvency of Spain and the EU as both sides play yet another dangerous game of brinksmanship to please their voters back home. Consider:

• Losses in these elections for PM Rajoy’s People’s Party could make it harder for Spain to muster the needed political will cut public spending, even if things don’t get worse for Spain.

• Unfortunately, odds favor further deterioration:

• Spain economic data continues to be awful. For example, It’s banks continue to bleed deposits and their bad loan rates are rising [chart???].

• Yet another Spanish autonomous region, the Balearic Islands, announced plans on Friday to request aid of 355 million euros from the Spanish Government’s Liquidity Fund for the Autonomous Communities, raising the risks that the regional bailout fund may soon be overwhelmed before. It’s likely that Spain’s regional finances will worsen, so Spain my suddenly find itself needing a bailout without enough time needed to arrange it.

• Other Events Could Stop Or Delay Bailout & Ignite New Fears, Crisis

Spain may be too important to fail, but there are so many moving parts to this bailout that the chances of failure grow as time goes on. A fatal delay that ignites new Spain solvency worries could come from

Increased German demands due to upcoming German elections, trouble with Greece, a rating agency’s action, or other unforeseen domestic or foreign issue could suddenly make the bailout look uncertain, or at least too unlikely to happen in time before Spain’s solvency is again in doubt. That would once again send Spain’s borrowing costs soaring and reignite worries about the stability of the Euro-zone and the Euro. As we’ve seen before, that worry could then send other GIIPS bond yields soaring and suddenly the EZ is again in flames.

2. Poor Earnings Suggest Reconnection To Underlying Economic Fundamentals, Futility of Central Bank Actions

Since the Spring of 2012, we’ve had an odd disconnect between risk asset prices and global economic fundamentals. Most risk assets have maintained an uptrend while global economic data has deteriorated. Earnings season thus far has been as disappointing as expected. The justification for this was that more central bank easing would yet again inflate asset prices.

For example, per a recent Reuters report:

“Based on results from 116 companies and estimates for the rest, earnings for S&P 500 companies are expected to decline 1.8 percent from a year ago – the first such decline in three years…So far for the fourth quarter, there have been 17 negative outlooks from companies, no positive outlooks and one in line. That compares with 11 negative outlooks, two positive outlooks and two in line at a comparable period for third quarter guidance.”

See here for details.

If next week’s results continue in the same direction, markets will need to consider whether we’ve reached the end of stimulus based rallies that have brought them near pre-crisis highs without the underlying fundamentals to support these prices.

This leads to the following conclusions.

3. Upside Potential For Risk Assets Very Limited

In sum, if markets are moving on hopes for Spain, and they’re pulling back on bad earnings, we have a problem.

In addition to the above, consider:

a. Chances Of Pre- “Fiscal Cliff” Selling

Added to the above concerns is whether US investors may start to sell in order to book capital gains at the low 15% rate in order to avoid likely higher rates that could well be coming as part of the fiscal cliff negotiations.

b. Technical Barriers Firm In Absence of Bullish News

Friday’s action was the most interesting of the week, as a world-wide market pullback wiped out major chunks of the week’s gains for most major stock indexes, leaving them with minor gains at best over the prior week’s pullback.

There was no definitive explanation for the Friday profit taking, leaving us to suspect technical resistance, in the absence of news to justify further gains, was the real culprit.

For example, looking at the weekly chart of the S&P 500, the 1450 zone has held firm for the past 6 weeks.

As usual, the S&P 500 is an accurate barometer of risk appetite. Other bellwethers of risk appetite, like the DAX, the EURUSD, Brent crude oil, etc, all show similar stalling at resistance for the past 6 weeks.

So another big lesson is that despite all the stimulus coming or anticipated, markets still need some meaningfully good news to move higher.

So What To Do?

We maintain our current position. We don’t start selling risk assets while the overall up trends remain intact, and we’re not establishing new longs at this time.

We reiterate our weekly warning that all of the most likely scenarios we see coming involve a vast expansion of the supply of dollars, euros, yen, and also of other currencies as nations seek to protect their exports’ competitiveness with cheaper currency.

That means we all need to start diversifying into the more responsibly managed currencies or into assets denominated in them. For details on the best collection of the safer, simpler, less demanding ways to do this than generally found in guides to forex markets or to investing in foreign assets, just type “The Sensible Guide To Forex” into your search bar.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

PRIOR WEEKS’ TOP MARKET MOVERS’ 4 KEY LESSONS FOR THIS WEEK is a post from: Global Markets

Last week markets remained within their tight trading ranges of the past month, the only difference being that they pulled back towards the lower end of that range, as exemplified by the bellwether S&P 500’s over 2% drop.

While it’s possible that last week’s drop was just another gyration within that trading range, here are reasons we believe that next week is more likely to bring a more extended pullback.

1. Q3 EARNINGS SEASON: CATALYST FOR A PULLBACK?

As noted in our review of last week’s top market movers, PRIOR WEEK MARKET MOVERS: Q3 EARNINGS, DATA, OVERCOMING CENTRAL BANK MANIPULATION? (see here), the big take-away lesson was that a poor Q3 earnings season may be what ends the prevailing notion that risk assets can continue to rise despite:

• Global growth slowing
• An increasingly poorer Western consumer that has been the foundation of both developed world and BRIC export economies
• Potentially catastrophic threats to the largest consumer economies from the EU solvency crisis and US fiscal cliff

Of course, all of the above have been with us for some time and markets have still either continued higher or held their ground. The only big change last week was that Q3 earnings season began, and thus far indeed looks like it may be the worst in years. Until last week, bulls waved off these concerns by saying that the weaker season was already anticipated and hence priced in.

Last week’ ~2% drop in US indices suggests that’s not the case. However the first week of earnings season is relatively light.

Earnings season is most influential on markets in its second and third week.

This second week is the first ‘big’ week for earnings season, with hundreds of firms reporting and a huge chunk of the big names that tend to get attention and move markets, as detailed in the above mentioned post. If these announcements continue the downbeat tone of last week, and markets continue to pull back without the help of major bearish news elsewhere, then Q3 earnings may prove to be the final evidence that the disconnect between rising asset prices and deteriorating economic fundamentals may be over, regardless of the current money printing from the Fed, ECB, BoJ, PBoC, etc.

Note that we must watch more next week than just bottom line earning beats or misses. Markets will also be watching:

• Future guidance for Q4 2012 and beyond:  Some, like Citi’s Jason Shoup, feel these are still too optimistic, thus leaving us vulnerable to downward revisions

• Top line revenues: As costs have already been pared, sales growth will be key to growing future earnings.

2-5. EU EVENTS

The EU has remained relatively quiet for weeks as an actual market mover (though it continues to produce headlines and drama). However there are simply too many sources of market crises for that to continue. In the past week’s we’ve repeatedly reminded readers of reports that Washington wants quiet on the EU crisis front until after the elections, and it appears that the EU is doing its utmost to comply, despite:

Greece seeking additional cash that by all logic it doesn’t deserve because it has shown few signs of good faith in meeting its bailout agreements, and even fewer signs that it might actually repay its current debts, never mind additional ones. Greece will run out of cash within the month without another handout.

Spain showing every sign that it’s going the same way as Greece (ongoing bank runs, political instability, budgets based on unrealistically optimistic growth projections, etc)

2. EU Summit

Per the recent European Finance Ministers meeting, Greece may well get its cash anyway, be it due to Washington’s request for quiet or simply the belief that the resulting contagion risk is too high and would cost far more than the ‘loan’/handout to Greece. Few expect any meaningful action on Spain, which is avoiding any moves on a bailout until after October 21 regional elections, and in general is trying to avoid a bailout with conditions that would prove politically unpopular, like tax increases, spending cuts, or other steps needed for repaying its debts in a timely manner.

3-4. French, Spain Bond Auctions, Other Events

Spain has a key auction of benchmark 10 year bonds, and France also has a bond sale this week. Thus the ECB typically makes sure all looks well, so any problem with spiking yields or weak demand can make markets nervous.

In addition to Spain’s bond auction, Spain also has regional elections in Catalonia and Galicia, and there’s the threat of a credit ratings review from Moody’s that could push Spanish bonds into the junk category. Last week’s downgrade was seen as bullish, because supposedly it moved Spain closer to a bailout. However that assumes Spain will submit to EU conditions before doubts of its solvency bring yet another market crisis. We suspect that a market scare is more likely than a smooth transition to bailout, particularly once US elections have passed.

France also has a bond sale this week. France has remained off the radar thus far, but few expect it to remain so. One bad auction is all it takes to get markets focused on France’s worrisome data and puzzling policies to improve its debt and growth situation.

5. UK Events

In addition to UK inflation, jobs, and consumer spending data, the big UK event this week is the BoE meeting minutes release, because it could show if the BoE is moving closer to following the Fed, ECB, BoJ, PBoC,  and others into easing.

6. US RETAIL SALES

In addition to Q3 earnings, the big event for the US will be retail sales, which will either confirm the latest improved jobs figures or refute them. In the end, the significance of improving jobs is improving spending, given that US GDP (and thus job growth) depends mostly on improving consumer spending.

7-8. CHINA, AUSTRALIA DATA, SIGNS OF MORE EASING

There ‘s a batch of data due from China, including September trade balance numbers, consumer and producer prices, industrial production, retail sales, and 3Q GDP. If these worsen, markets could either react negatively, or, as is happening more frequently in these times of stimulus being the last hope for bulls, positively if the data is bad enough to raise hopes for more stimulus. Recent comments from PBoC Governor Zhou have fed hopes that more easing is coming, and that’s kept Chinese markets in relatively good shape, and also supported the AUD, given the close link between Aussie and Chinese GDP.

The RBA will release its latest meeting minutes, and these too could move markets if they yield hints about whether more easing is coming or not.

9. TECHNICAL WEAKNESS COULD BECOME SELF-FULFILLING

Many have noted that the S&P 500 is dangerously close to its 50-day moving average, risking a cross below it (aka an ‘iron cross or ‘death cross’) that sends a strong technical signal of further downside ahead. In the absence of positive news, such widely followed technical signals can become self-fulfilling prophecies.

10. OTHER CALENDAR EVENTS

Other top calendar events not mentioned above include the following:

• Tuesday: German ZEW economic sentiment

• Thursday: US Philly Fed Mfg Index

• Friday: US Existing Home Sales

See any good economic calendar for further details

PARTING THOUGHTS: OBVIOUS PROTECTION IN UNCERTAIN TIMES

While the coming week could play out in a number of ways, what is virtually certain in the longer term is that the leading central banks remain committed to printing money, even if their currencies fall and drag down the value of anything denominated in them.

That means if you’re based in USD, EUR, JPY and other currencies subject to central banks in easing mode, you need to start increasing your exposure to more responsibly managed currencies or assets linked to them.

Until recently, most people have had a hard time finding solutions to this need for currency diversification. Most forex guides focus on methods that are too demanding and risky for mainstream investors, and most foreign investing guides focus on the fundamentals of specific assets without considering the quality of the currency to which they’re linked.

I’ve got a new book out full of solutions. It’s the only forex book I know of that’s written for those seeking safer, simpler ways to do that than generally found in forex or international investing guides.

So consider the book, The Sensible Guide To Forex: Safer, Smarter Ways To Survive and Prosper From The Start (Wiley & Sons, 2012).

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

COMING WEEK MARKET MOVERS: EARNINGS, ECONOMIC REALITIES, OVERRIDING STIMULUS OPTIMISM? is a post from: Global Markets

Indeed, the unprecedented influence of central bank interference, and thus its unpredictable effects, was the chief concern of top analysts this week at The Big Picture conference hosted by Barry Ritholtz, one of the premier finance bloggers. See here for details.

Overall, global equity and currency markets remain in their tight trading ranges of the past month. However this past week markets retreated towards the bottom of those monthly trading ranges.

Why? What changed?

The big new thing was the start of Q3 earnings. Their weakness was anticipated, but apparently not as priced in as thought.

Sure, there were also all kinds of reports confirming the already established slowing or stagnant global growth picture, but that’s old news. Besides, the prevailing view has been that new, often unlimited central banks stimulus programs were enough by themselves to keep assets rising despite economic realities.

So here’s the biggest question coming out of this past week.

Will Q3 earning reports prove to be the catalyst for the long anticipated pullback? Will they be the reality check that awakens markets from their stimulus induced highs and pulls them down back into the cold reality of slowing growth bringing declining earnings and asset prices, regardless of historically unprecedented degrees of central bank money printing and low to negative interest rates?

Earnings Worries

Note that 75% of firms offering forward guidance have cut their earnings forecasts. Results thus far have done nothing to raise earnings expectations.

Growth Fears

In addition to the steady stream of downbeat data in recent weeks, growth fears were fanned by news that the World Bank had cut growth forecasts for China and East Asia on Monday, which was then followed by the IMF lowering its global growth forecasts Tuesday.

Other Market Movers

On Thursday markets rallied overall on the US jobless claims beat, and S&P’s Spain credit downgrade (to BBB, one level about junk status. That was seen as bullish because it raised hopes Spain would request and receive a bailout.  On Friday, however, markets again retreated on growth and earnings concerns.

Conclusions, Lessons

Bulls have argued that the weak earnings season and future guidance was already priced in. The past week’s results suggest otherwise, but earnings season has only just begun.

This week earnings season kicks into high gear with far more big name firms reporting. Stock markets tend determine overall market risk appetite.

Q3 Earnings Could Spark A Move Lower

Uncertainties regarding the EU, China, and the US (along with assorted geopolitical tensions) have been with us for a while. There was nothing new last week other than the start of earnings season.

The coming week is the first ‘big’ week for earnings season, with hundreds of firms reporting and a huge chunk of the big names and sector leaders that tend to get attention and move markets. For example, Dow components GE, MSFT, and IBM, key financial stocks like Bank of America (BAC.N), Citigroup (C.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N.), and other blue chips like tech giants INTC.O, GOOG.O, and also MacDonald’s Corp  (MCD.N), UnitedHealth Group (UNH.N) and Johnson & Johnson (JNJ.N).

If earnings and future guidance continue to be dour, they’ll both:

–Refute the bull’s argument that markets had already priced in a weak earnings season.

–Reinforce the bear’s argument that slowing growth indeed must soon hit earnings and risk asset prices.

Then the long anticipated pullback, despite central bank easing, is far more likely.

For more on what’s likely to move markets this week, see our post on coming week market movers.

What To Do?

The tight trading ranges at relatively elevated levels have not provided low risk entry points, not for multi-week trades nor for long term investments. We sit tight for now given the lack of direction. Overall thin trading volumes suggest most players agree with this approach.

What is clear is that the leading central banks remain committed to printing money and allowing their currencies to drift lower, so for the longer term, everyone whose central bank is in long term easing mode (most of the major central banks are) needs to start increasing their exposure to more responsibly managed currencies or assets linked to them.

Not sure how to do that? I’ve got a new book out full of solutions.

I’ve got a new book out that’s  full of solutions. It’s the only forex book I know of that’s written for those seeking safer, simpler ways to do that than generally found in forex or international investing guides.

So take a look at The Sensible Guide To Forex: Safer, Smarter Ways To Survive and Prosper From The Start (Wiley & Sons, 2012).

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

PRIOR WEEK MARKET MOVERS: Q3 EARNINGS, DATA, OVERCOMING CENTRAL BANK MANIPULATION? is a post from: Global Markets

If we look only at how markets moved with the big news items, here are the prior week’s top market movers.

1. The Spain Thing Was The Main Thing

The biggest concern this past week was whether Spain would be able to secure a bailout before it once again threatened to default and spark a new EU and global crisis.

Markets fretted about Spain Monday through Wednesday, and rebounded on Thursday’s much anticipated Spanish budget release, which led investors to believe Spain will do what’s necessary to get its bailout and so at least defer a Spanish default and market crisis.

However by Friday many analysts were already pointing out that the budget was based on unrealistically optimistic assumptions that Spain’s GDP will only decline by 0.5% in 2013.

In other words, Spain’s budget proposal is just another deception, and if that conclusion becomes the consensus option, we’re right back where we were at the start of the week – with markets pressured by rising risk of a new EU crisis (again, probably unavoidable as it’s a prerequisite needed to force a deal).

Thus we expect to see more pain from Spain in the weeks ahead until we first hit a crisis (size and duration unknown) that forces a deal). As we discuss below, however, a deal is expected, at least one that keeps things calm through early November. President Obama insists on it.

EU Vs. Spain In Game Of Chicken Scaring Markets

The big worry is that Europe’s fourth largest economy might ultimately not accept the EU bailout, or do so only after other unintended damage is done. Although it probably will, Spain and the EU’s ongoing game of chicken risks crashing markets because market may anticipate that Spain won’t yield until the situation reaches crisis levels and Spain is at risk of default.

Why the standoff?

The Spanish government is torn between conflicting demands of:

• The EU for more austerity measures to cut its deficit. Without these, there will be no EU aid, which Spain must have to avoid insolvency for both the government and its banking system. Thus far austerity measures have only made things worse for the GIIPS, but austerity remains the price for further aid.
• Popular and Political Opposition: Spain’s voters have seen nothing but suffering from the past 3 rounds of austerity in 9 months, and fear of another one has brought unrest  and opposition that could bring new elections. Meanwhile, Spanish leaders fear not only the wrath of voters, but also the scrutiny of Troika auditors, who are likely to find untold amounts of hidden debt in Spain’s notoriously cooked books.

Thus, in theory, there remains a real chance that Spain and the EU might not reach a bailout deal before markets start to dive on fear of a Spain default.

The Balance of Bargaining Power: Spain Vs. The EU

It’s not clear how this will end, at least on a superficial level.

• On the one hand, there’s no question that Spain needs the bailout. The ECB is the only real buyer for its bonds, and unless Spain cooperates, the ECB could simply stop buying them and consign Spain to default. The EU’s biggest ally may well be Spanish depositors, who continue to withdraw funds from Spanish banks and keep up pressure for a deal before Spain’s banks are bled dry by their own depositors.

• On the other, the default of the EU’s 4th largest economy could crash the EU and probably global markets as well, so the EU cannot simply dictate terms, because at some point Spain can credibly threaten to drag the world down with it.

If you want proof of how much the EU wants to avoid any default risk that could spark a contagion of sovereign and bank insolvencies, look how the EU has yet to enforce bailout commitments with Greece. If Europe can’t accept the consequences of a Greek default, how much more so it fears a much larger Spanish default. Indeed, according to Reuters, two German magazines have reported that despite its noncompliance with prior aid agreements and lack of progress in making reforms, Greece will in fact get the next tranche of 31 bln euros before the next Eurogroup finance ministers meeting on October 8th.

Per one anonymous senior EU official, the fear of a domino effect in the EZ is too great to not release the funds.

However, if you accept this reason, then the bailouts must keep coming indefinitely, and the agreements on which they’re based are unenforceable.

It’s hard to see the funding nations accepting this situation of being obligated to endless bailouts and money printing. So what’s really happening?

2. The Real Top Market Mover Coming From Washington: US Request To Keep EU Quiet

As I wrote last week, sometimes the biggest market mover is that which prevents what would have been dramatic events from happening.

Washington To Brussels: Keep Quiet

On the surface, the EU’s reluctance to get tough with Greece is surprising. Its default is not considered a fatal risk, and so it makes sense that the EU set an example with Greece in order to encourage compliance from the rest of the bailout bunch. Otherwise, EU credibility is shot with both debtor nations and, more dangerously, global financial markets. If the EU can’t enforce reform agreements, how can it survive?

The EU is creating a classic moral hazard by tolerating Greece’s non-compliance.

So why does the EU risk moral hazard and let Greece flout EU agreements?

The only good explanation for this behavior is the one I gave in last week’s post, JUST 2 THINGS REALLY MATTER THIS WEEK-BOTH FROM WASHINGTON: that the Obama administration has kindly requested that the EU maintain quiet until after the US elections. A crisis and market plunge could be fatal for Obama’s reelection chances.

The big take away point is that for all the EU drama, Europe’s leadership will do its utmost to see that none of it gets serious enough to rattle markets until after early November. This theory explains the EU’s indulgence of Greek failures better than anything else.

More importantly, it also suggests the rest of the GIIPS, including Spain and Italy, will get what’s needed to keep markets calm. So even Europhobes like me can be a bit calmer in the coming weeks.

Granted, that could get expensive for the EU, though its leadership seems to think the investment is worthwhile.

The implied payoff is that a grateful reelected President Obama will graciously volunteer US taxpayers to help continue funding the failing currency union.

Even if we accept that the EU will do all it can to keep a lid on things until after the US elections, that’s no guarantee that Spain can be stabilized. For example:

• There’s risk of a no confidence vote in Spain bringing new elections and delays to any bailout scheme

• If secessionists in the Catalonia region take control (a possibility), we could see a standoff with the central government that also paralyzes Spain’s ability to close a bailout deal.

3. New China Stimulus

The other big market mover was speculation about and the announcement of a new $28.5 bln China stimulus program. As usual, markets ignored the fundamentally bad news that China must resort to stimulus, and instead investors bid risk assets higher in anticipation of a short term rally.

The PBoC became the 4th major central bank in four weeks to announce new liquidity injections. While the prior three from the ECB, Fed, and BoJ have yet to even produce a sustained rally, the initial reaction to China’s move was positive. Combined with the Spain budget announcement, the new, relatively modest (QE 2 was $600 bln) China stimulus sparked the first broad based rally in 12 sessions.

4. Other

There were a few other events that briefly moved markets.

• German Ifo business confidence survey missed expectations

• Heavy equipment maker Catapillar’s earnings miss was seen as a negative sign for the sector

Data was otherwise mixed and of no major influence

Lessons & Ramifications: Dealing With Money Printing Is The Key Theme

We expect Washington’s “maintain quiet” to continue to be the big stealth market mover in the coming weeks, as it will keep an otherwise volatile EU situation from scaring markets. So short term traders may use the occasional scary headlines about imminent default s as opportunities for establishing long positions that can be closed when the moment of reckoning is deferred and markets bounce in relief.

As for longer term traders and investors….

So what do you do? Where do you run? Where do you hide?

It’s not the time to go long risk assets. A combination of slowing global growth and  pricey risk asset markets (still pumped up from  correctly anticipated stimulus over the past months) suggests that this is not the time to take new long positions in risk asses.

But it’s too early to short them, given that key global indices have signaled any technical breakdown, and once stimulus programs get going they could inflate asset prices higher.

Gold has momentum, but only another 5% move higher brings it back to all time highs and the QE news driving it is already out. We’d reconsider gold on a breakout past historical highs or a retreat back to multi-month support of 1560.

Yields on classic safe havens like AAA bonds are low.

A look at the charts for the EURUSD and USD index show neither currency presents a tempting technical picture, with both in long term down trends. Moreover, both currencies have deep fundamental problems:

The EUR: At best it’s due for a period of money printing that will likely ultimately devalue it. At worst the monetary union has genuine existential threats and could break up.

The USD: Also is due for a prolonged period of pressure from unlimited monetary expansion, and also has the coming fiscal cliff issues (likely to be deferred yet again with resulting higher US debt and money printing – 2 long term factors eroding the USD’s value).

There’s no shortage of speculation and free advice online about what markets may do in the coming weeks and beyond.

So I’ll focus for now on doing what no one else is doing: reminding everyone to avoid the most common, least mentioned investor mistake: failing to hedge their currency risk.

Just like any prudent investor diversifies their holdings by sector and asset class, they must also diversify their currency exposure to avoid the likely loss of purchasing power to come from what’s becoming unlimited money printing.

Everyone’s Currency Risk Dilemma: Can’t Live With Forex, Can’t Live Without It

With most leading central banks either actively expanding their money supply or preparing to do so, they are likely to end up devaluing their respective currencies. So the need for this is obvious for anyone whose wealth is mostly denominated in the USD, EUR, or JPY, the three most widely held currencies (as well as for those based in currencies of export based economies that may devalue their currencies in order to keep their exports competitive.

While forex markets may seem like the obvious address, the usual forex trading methods are often too risky and demanding for most people. Much of the mainstream financial media rejects forex altogether for this reason.

So on one hand everyone needs to diversify currency exposure, but on the other the most commonly known forex trading methods aren’t right for most people. Per CFTC reports, about 70% of traders aren’t profitable.

It doesn’t have to be that way. Forex is far too valuable a baby to toss out with the bathwater based on the wrong information and methods.

There Are Solutions

Fortunately, whether you’re a trader or long term investor with no interest in trading, there are numerous safer, simpler ways to get this must-have diversification without excessive risk or time commitments. Seehere for details on the only forex book written for mainstream investors and risk averse traders, and here for more info on a free course based on the book.

One Example of A Safe, Simple Approach for Non-Traders

Here’s one brief example of a relatively simple, low risk approach for those not even interested in trading currencies. If you have cash you don’t need in the coming years, seek solid Canadian, Australian, and Norwegian dividend paying stocks. They’ll provide not only steady income but do so in currencies likely to hold their value or appreciate versus most other major currencies. Unlike other nations with solid balance sheets (like Switzerland) they aren’t actively trying to drive their currencies lower. I get into this topic in greater depth in the book.

Of course plenty of advisors recommend foreign dividend stocks. However few ever consider the critical currency component, which can turn a winner into a loser or vice versa.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER. 

PRIOR WEEK MARKET MOVERS: IT’S WASHINGTON, NOT THE EU, THAT REALLY COUNTS is a post from: Global Markets

Of all the potential market movers in this typically event-packed first week of the month, the biggest is arguably the one you won’t hear anything about. So we’ve listed it first.

1. ONGOING EU DRAMA: DAILY VOLATILITY BUT CRISES PROHIBITED BY OBAMA

Remember, sometimes the biggest market movers exercise power by suppressing rather thancausing great volatility.

As noted in our weekly review , the EU’s continued aid to Greece despite numerous reasons not to do so seems to confirm last week’s Reuter’s report that the EU is essentially under orders from Washington not to allow any default threats until after the US November elections.

That means no matter how dire the headlines, nothing too unpleasant is likely to happen in the EU until after these elections. Given the potentially enormous costs to the EU and its leaders by continuing to fund Greece, never mind far larger economies like Spain, we assume the expected reward from Washington outweighs these costs, including:

1. Additional funds lost in bad loans to Greece
2. Additional funds at risk of loss from purchases of Spain, Italy and other GIIPS bonds even when these nations refuse to accept conditions which might give lenders hope of being repaid
3. Moral hazard from funding nations that fail to make progress in cutting debt or making other reforms, which complicates getting other GIIPS to cooperate with existing bailout plans
4. Risks to the long term reputations of EU leaders who are complicit in this Obama reelection plan if history shows they did nothing but dig themselves into a deeper hole
5. Raising the risk of facing a far less sympathetic Romney administration in the event of Republican victory

Whatever the anticipated payoff from Washington, it must be considerable. US taxpayers beware. Again, if Romney wins, whatever anticipated favors will not only be off the table, but also EU leaders will need to pay up again to pacify a Romney administration  with a grudge against them (albeit limited by the knowledge that bad news in the EU is bad news for the US).

In sum, Spain, Greece, et. al. could well provide scary headlines but are unlikely to be in real danger for the coming weeks.

As we’ve mentioned earlier, the biggest market mover may be this “keep quiet” order that prevents volatility that might otherwise have occurred.

Note however, that there’s no guarantee that US and EU leaders can really control events or market sentiment even in the short term. In Spain’s Catalonia region (which is a net revenue contributor to Madrid), there’s 90% support for secession. At minimum they want an equal level of budgetary autonomy as that granted the Basque region. If granted, that alone creates an additional hole in Madrid’s budget. However if Madrid yields, there are two other net revenue contributor regions that will likely want the same deal, further destabilizing Spain economically and politically.   No wonder Spain’s military is sounding restive about the need to subdue these movements.

So EU headlines retain the potential to override anything else that’s happening, even the traditionally influential US jobs reports this week.

Moreover,  even if quiet can be kept through November, EU default risks are likely to come roaring to the  forefront again, so any calm in the EU is strictly for use by short term traders.

We find it hard to believe that the few remaining funding nations (Germany, Holland, Finland) will indefinitely accept endless bailouts or potential dilution of the EUR through unlimited money printing, or that the debtor nations will submit to years of increasing austerity and contraction. Even if the costs of exiting the EUR are high, someone’s voters are likely to hit a breaking point and cause some degree of EZ breakup.

2. REVERSAL OF LAST THURSDAY RALLY BASED ON SPAIN BUDGET

Spain’s budget announcement Thursday was initially greeted with enthusiasm as it appeared to demonstrate Spain’s commitment to cutting its budget deficit and qualifying for a bailout that would remove default risk for the near future.

However by Friday many analysts were already noting that the budget was based on unrealistically optimistic assumptions about Spain’s GDP declining by only 0.5% in 2013. For example

• BofA Merrill Lynch forecasts -1.7 % GDP
• SocGen expects -2.2 %
• Citi predicts-3.2 %

If these predictions gain wider acceptance, which is likely given Spain’s history of dubious reporting standards, then disappointed markets could sell off on renewed anxiety that the ongoing game of chicken between Spain and the EU could resume, and Spain and possibly the EU,  could collapse soon due to lack of bailout.

These could potentially be THE big market mover this week. Whether they are depends solely on whether they get wider acceptance.

Remember, the above Reuters report about Washington’s “no October defaults” request is not widely accepted at this time, although the EU’s continued cash aid to Greece regardless of Greek noncompliance, despite the significant costs noted above,  certainly suggests that the Reuters report is valid.

3. US MONTHLY JOBS REPORTS: UNLIKELY TO CHANGE PICTURE OF STAGNANT US ECONOMY

If Europe stays quiet next week, these and the related reports (ISM Mfg and services PMIs, ADP NFP) that feed speculation about the final BLS reports Friday could move markets in general and almost certainly will move the USD, and thus also the EUR and most other major pairs, because the USD is the most common counterpart for most major and second tier currencies.

Speculation about the potential failure of the Federal Reserve and QE infinity will likely increase if job growth again falls below 100k as it did last month.  The leading indicators available thus far for non-farm payrolls are equivocal.  Consumers are bit more optimistic,  but jobless claims have are rising and weaker manufacturing conditions are reported in many regions.  For example on Friday manufacturing activity in the Chicago region dropped to its lowest level since September 2009, shrinking for the first time in 3 years.  While there was some minor improvement in jobless claims last week, the 4-week moving average continued higher. Without that improvement in jobless claims, that moving average would be higher still.  The NFP figure is expected  to be around last month’s levels-not great at all, in line with the generally stagnant US growth picture, which was further supported by last week’s mixed data.

4-9. NUMEROUS CENTRAL BANK EVENTS: MAY BE INFLUENTIAL IF ABOVE ITEMS QUIET

Five major central banks will make potentially market moving appearances this week.

Four of them will  be making monetary policy announcements: the Reserve Bank of Australia, European Central Bank, Bank of England and Bank of Japan.  After having just announced additional  monetary stimulus in September, no additional action is expected from the ECB and the BoJ.  However markets have retreated after these announcements in a classic “sell the news” move (after having bought on the rumor of anticipated new easing over the prior weeks), so it will be interesting to hear what they say.

Here’s what to listen for:

If the ECB and the BoJ focus on damage control and talk about how it takes time for the stimulus to filter down to the economy, investors will interpret this to mean that they aren’t ready to do more, and that  could hurt risk appetite.

However if they continue to show concern and stress that they haven’t run out of options and their powers are unlimited, then their attitude of being ready to do more in should lift risk asset markets in general.  While news of additional stimulus usually hurts a currency, it might ironically help the EUR because:

• It’s a risk currency and so benefits from risk appetite.
• It’s very survival is at risk.
• The EUR stimulus hasn’t started, the Fed’s has: For all the talk about the ECB’s being unlimited, that program can’t begin until Spain actually asks for a bailout, which it may not do for a while yet. Meanwhile the Fed is already actively easing and in theory diluting the value of the USD. Thus more easing for the EUR is unlikely to hurt it much versus the USD.

The Bank of England is moving towards increasing their own asset purchase program but we don’t expect them to do anything in October.  The same holds for the Reserve Bank of Australia, as neither have enough reason to rush into monetary easing.

However if Spain is downgraded by Moody’s and that move sets off widespread volatility in the financial markets, then these banks might move faster in hopes of calming markets.

Also, Fed Chairman Bernanke speaks and there will also be a release of FOMC meeting minutes.

10. EARLY SPECULATION ON Q3 EARNINGS SEASON

Earnings season officially kicks off with basic metals bellwether Alcoa’s October 9th earnings release, but that may not stop early speculation, especially given the negative tone of early guidance over the past month from other global sector leaders like Fedex (air shipping), or Caterpillar (heavy construction equipment).

11. US PRESIDENTIAL DEBATES

On Wednesday we’ve the first of 3 scheduled debates between Obama and Romney. Obama currently leads in the polls. This might be market moving if Romney is seen as the winner and poll results show a tightening race, which means more political uncertainty on one hand, but on the other is an improvement for Romney, who is seen as more market-friendly, and more likely to resolve fiscal cliff issues if he brings Republican control of Congress.

12. OTHER ECONOMIC CALENDAR EVENTS

Here are just the most important ones that weren’t mentioned above. For further details consult any good economic calendar like those of :

• Dailyfx.com
• Forexfactory.com

Top events to watch:

• Sunday: Japan Tankan large mfg index Q3
• Monday: US ISM mfg PMI survey
• EZ PPI for August
• Wednesday: EZ retail sales, US ISM non-mfg PMI survey, ADP NFP report
• Thursday: US FOMC meeting minutes release

CONCLUSIONS: 6 THINGS TO CONSIDER IN THE NEW ERA OF WIDESPREAD MONEY PRINTING

Despite the uncertainty, the most pressing investor dilemma is becoming more obvious than ever. Consider:

1. In the past four weeks, we’ve had 4 of the top central banks opt for massive new money printing schemes.

2. The BoE is likely to join them in the coming months, meaning that the 4 most widely held of the major currencies (the USD, EUR, JPY, and GBP) are now seeing dramatic expansion in supply. Historically this eventually leads to loss of purchasing power (aka inflation) and is a stealth tax on anyone whose assets are denominated in these currencies.

3. Any near term solution for keeping the EU solvent is almost certain to involve even more money printing.

4. The likely near term solution to the US fiscal cliff (cuts in spending and tax hikes due to hit at the end of the year) will be to simply defer it, meaning the US prints even more money needed to buy its own bonds to fund a still growing deficit.

5. Devaluation Breeds Devaluation: As these currencies lose value, other export based economies will feel forced to devalue their own currencies in order to keep their exports competitive. The Swiss, Japanese, and now Chinese are actively intervening to lower their currencies. Expect others to follow.

6. As we noted last week, the Fed appears willing to tolerate 3% inflation – a 30% per decade hit to your purchasing power and wealth. In other words, just to stay where you are, you’ll need to increase your income and asset value by 30% every 10 years. With 10 year US notes yielding around 1% and incomes stagnant? Good luck with that.

For those with most of their assets denominated in one of the above currencies, or one of the export economy currencies likely to join the race to the bottom of currency values, there’s no choice but to diversify your currency exposure. At minimum you reduce the loss of wealth from declines in your local currency. Ideally, you get assets denominated in stronger ones and benefit from their appreciation.

Everyone’s  Big Currency Dilemma: Can’t Live With Forex, Can’t Live Without It

While forex markets may seem like the obvious address, the usual forex trading methods are often too risky and demanding for most people. Much of the mainstream financial media rejects forex altogether for this reason.

So on one hand everyone needs to diversify currency exposure, but on the other the most commonly known forex trading methods aren’t right for most people. Per CFTC reports, about 70% of traders aren’t profitable.

It doesn’t have to be that way. Forex is far too valuable a baby to toss out with the bathwater of ignorance, of the wrong information about currency markets and ways to trade them.

There Are Solutions

Fortunately, whether you’re a trader or long term investor with no interest in trading, there are numerous safer, simpler ways to get this must-have diversification without excessive risk or time commitments. Seehere for details on the only forex book written for mainstream investors and risk averse traders, and here for more info on a free course based on the book.

You Don’t Even Need To Be A Trader

Here’s one brief example of a relatively simple, low risk approach for long term investors who are not interested in trading currencies. If you have cash you don’t need in the coming years, seek solid Canadian, Australian, and Norwegian dividend paying stocks. They’ll provide not only steady income but do so in currencies likely to hold their value or appreciate versus most other major currencies. Unlike other nations with solid balance sheets (like Switzerland) they aren’t actively trying to drive their currencies lower. I get into this topic in greater depth in the book.

Of course plenty of advisors recommend foreign dividend stocks. However few ever consider the critical currency component, which can turn a winner into a loser or vice versa. The book will show you simple ways for identifying the currencies to which you want some exposure, and how to find the right related stocks, bonds, or other asset types.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER. 

THIS WEEK’S 12 MARKET MOVERS, AND 6 THINGS TO CONSIDER is a post from: Global Markets

For the coming week, here are the likely top market movers. Only the first 2 are likely to matter. Both of these originate from one overriding political goal.

1. Ongoing Reaction To QE 3, OMT: Neutral to Positive

As in the weeks following QE2, we may continue to see consolidating markets as bearish selling “buy the rumor sell the news” profit taking balances bullish buying ahead of the anticipated next leg higher as at some of all the new cash seeking to find a home reaches risk asset markets like stocks.

2. The Obama Pre-Election Freeze On The EU Crisis: Super Bullish–The Top Market Mover For The Coming Week (And Beyond)

Sometimes the biggest market mover is the one that is hard to see because it acts by preventingmovement, by maintaining calm when all hell should otherwise be breaking loose.

Arguably the single most important report last week was Friday’s  Reuters article  about how Washington is pressuring the Troika (EU/IMF/ECB) to delay its report on Greece (which could lead to another Greek default threat and bout of EU crisis)  to defer any bad news until after the US elections.

Here are a few key quotes:

“The Obama administration doesn’t want anything on a macroeconomic scale that is going to rock the global economy before November 6,” a senior EU official told Reuters, adding that previous troika reports had also slipped.

…Several sources in Germany described those conversations with their U.S. counterparts and said the message had been that the Americans didn’t want surprises before the election.

…”It’s likely the troika report will be pushed back beyond the U.S. election date,” said a Berlin official who spoke on condition of anonymity. Asked if that was a special request from Washington, he replied: “They don’t want any surprises.”

….A negative troika report could also revive pressure to force Greece out of the single currency area with potentially devastating knock-on consequences for other European countries and the global economy.

European leaders have the same interests as the U.S. president in not destabilizing markets — their own economies have also been badly affected by the fallout from Greece, where the sovereign debt crisis began in January 2010.

But one source said EU leaders’ motives went beyond macroeconomic stability. They also had political reasons to avoid rocking the boat before the U.S. election.

“As far as European leaders are concerned, they don’t want Romney, so they’re probably willing to do anything to help Obama’s chances,” said the source, an EU official involved in finding solutions to the debt crisis. (emphasis mine)

Am I the only one shocked by the above story, from a highly respected mainstream news organization, Reuters?

Forget the disturbing ramifications for how both global economics and politics work. The big idea here is that if US and EU policy makers are able to get their way (likely), then markets can almost ignore the drama in the EU until mid-November. It has been decreed: bad things shall not happen, lest the true state of things hinder Obama’s re-election.

Greece can do what it wants,

If Washington and EU are willing to put a freeze on the Greek situation, need we doubt that all the noise we’ll hear about the bigger threats, Spain and Italy, will indeed be just noise, until after the US elections? They may be deteriorating, but all is to be kept looking good for now. Bond sales will be successful (Spain is selling ~27 bln EUR in October); banks will stay solvent regardless of the ongoing run on Spanish and Italian banks.

That’s astounding, when we consider what’s going on just in Spain, never mind the rest of the GIIPS. Here are just a few examples, courtesy of Graham Summers Private Wealth Advisory Newsletter of September 14:

• Spain’s banks experience a 70 bln EUR run in August. Their entire market cap is ~114 bln, meaning they must raise at least 70 bln in the coming months just to replace that loss. Of course, Spanish depositors could easily maintain or increase the pace of withdrawals. If they do, then double the amount of capital Spanish banks must get from the ECB.

• Spain has set aside ~ 18 bln to bailout its regional governments. Of that, 10.5 bln has already been requested just this year, from Valencia, Murcia, Catalonia, and Andalusia.

Despite these obvious and disturbing ramifications, I saw no follow up articles or other signs that this story was a really, really big deal.

Who here is crazy? Me or the financial media?

If in fact the EU has been taken out of play until after the elections, and QE 3 is firing up, there isn’t much that’s likely to send markets much lower in the near future, especially as long as the already not great fundamentals don’t materially worsen.

Indeed, if markets behave as they did after QE 2’s announcement, the current consolidation is more likely to be a prelude to another leg higher.

Yes, there are plenty of threats out there besides the EU. There’s the ongoing China hard landing, the US Fiscal Cliff, some geopolitical tensions that could get ugly (China vs. Japan, Iran vs. Israel/US) but neither represent likely threats in the coming weeks.

3. Top Calendar Events

It’s a typical end of month light event risk calendar. Below we list the top events, though we suspect they’ll be influential only in the absence of other news or if they support the ongoing trend.

Monday: German Ifo survey

Tuesday: US CB consumer confidence survey, ECB Pres. Draghi speaks

Wednesday: US new home sales

Thursday: Italy 10 year bond auction-as noted above we doubt this will be allowed to be anything but rosy, unless ECB wants to send Italy/Spain a message that they must cooperate & accept bailout with its conditions and audits. Given the amount these nations owe, however, I’m not at all sure who really has leverage over whom. Greece thus far has able to play its default threat to a degree. US pending home sales.

Friday: US durable goods reports

Conclusions

1. Political Considerations Likely To Keep Markets Steady-To-Higher

2. For the coming weeks, our bias is neutral to higher. We believe the Reuters report. Indeed, it confirms our suspicions that the White House and is allies will manipulate markets as much as they can to keep things calm or upbeat until after the elections. Indeed, that theory goes far in explaining why the Fed announced QE 3 2 weeks ago. The US economy had not worsened markedly. We suspect the real drive behind the timing was a combination of:

• Desire to help temporarily stabilize the EU, the main threat to global markets, and so indirectly help the Obama campaign

• Desire to help the Obama campaign directly while it still can (and save Ben Bernanke’s job, which he’ll lose if Romney wins).

It’s an Obama re-election market now, with both US and EU policymakers doing all they can to at least keep markets steady, if not moving higher. This is the best explanation for why the Fed brought on QE 3 now.

The only other is that the EU is in even  worse shape than publicly admitted, and QE 3 is a means for a backdoor bailout (hat tip again to Graham Summers of Private Wealth Advisory and Phoenix Capital).

In sum, we follow the charts, and the principle of not fighting the Fed, both of which continue to suggest an uptrend and bias to risk assets and anything that’s a likely hedge for the EUR and USD.

IF YOU’RE HEAVILY EXPOSED TO THE USD, EUR, JPY, OR GBP

For the near and longer term, those whose assets are mostly denominated in these currencies (or in the JPY or GBP) should be working on diversifying into assets linked to or denominated in currencies that are not under severe devaluation threat from historical levels of money printing.

How do you do that? See here for the most update, complete collection of methods suitable for mainstream investors or traders who seek prudent currency hedging without the risks and complications of traditional spot forex trading.

Just like you diversify by asset type and sector, you should also be diversified by currency exposure. This need not be hard or complex, but it will take you some time to read or skim the book, and then to start acting on the methods that appear right for your needs.

If you’re not yet convinced that you’re likely to be the victim of a devalued currency, read here and here, and be forewarned.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER

JUST 2 THINGS REALLY MATTER THIS WEEK-BOTH FROM WASHINGTON is a post from: Global Markets

How to clean up in the new era of monetary dysentery

But first, a special thanks to Ben and Mario for my own personal stimulus program.

Dear Ben and Mario,

Seriously, you guys are the best. No author has had better marketing help from any central bankers. I’m sending you both copies of my new book.

I’ve spent much of the past year doing mostly just two things.

–warning readers that you and some other central bankers are likely to print your currencies into oblivion and ultimately devalue them and most assets denominated in them.

–writing a book of on how mainstream investors can hedge this enormous currency risk in ways that are safe and simple enough to be successful, and that avoid the high risk and demands of the usual methods used in currency markets.

Sure, I thought at some point in the coming years, when faced with choosing between the long term and short term health of your economies, you’d take the easy way out, go for short term benefits, and print like mad.

I was telling my readers, you’ll eventually need this book, so best to read it now and be prepared.

But wow, just as the book is released, BOTH of you announce programs virtually assured to send your currencies and (most assets denominated in them) into an even sharper long term tailspin. Of course, I’m far from the only one who sees this coming.

Regardless of whether you’re right or wrong, you’ve now made the need for hedging currency risk universal in the US and Euro-zone. Your counterparts in the UK and Japan are also doing their part, but you two are the champs.

Now everyone really needs the book, now, as the implications for your currencies are clear to many. For example, see here.  Sure, you’ve told us you’ve got the situation under control, and all that excess cash can be mopped up whenever you want. That may be. Of course, two years ago we were told Greece would neither need nor receive a bailout.

So I suspect many will decide it’s time to read this book, just in case this explosion in the money supply does indeed kill the purchasing power of the USD and EUR, and any other currencies experiencing similar monetary incontinence down at the local central bank.

Again, thank you so very much. Of course, whatever US dollar royalties I get may not be worth much, but at least I’ll know I helped some people dodge some of the damage you’re doing to their hard earned savings.

Ok, back to our regularly scheduled weekly preview of the coming week’s likely top market movers.

Given the magnitude of the likely huge new money printing schemes hitting the world in stereo, from both the ECB and Fed, the likely big market movers will be the ongoing reaction to both programs

ONGOING EFFECTS OF QE 3 AND OMT

As in prior weeks, actual economic data is likely to remain a mere sideshow. The big question is, how much longer can markets ignore worsening data and rally based on sheer anticipation of asset price inflation from QE 3 and OMT as markets scramble to put all that cash somewhere?

Fed QE 3

Last week’s main market driver was anticipation and reaction to the big Fed QE 3 announcement.

For those who missed it, here are the key details:

–The Fed will buy $40 billion of mortgage backed securities every month for as long as is needed to get unemployment down.

–Combined with the ongoing Operation Twist to the end of the year (at least), this totals to $85 billion in the next 4 months

–Then at least $40 million until unemployment drops to a desired figure (7% perhaps)

–For perspective, QE 1 cost about $1.7 trillion, QE 2 was about $600 billion, and QE 3 will add another….well, who knows?

There has been talk that asset prices have already discounted a big new QE 3 program, but how do you discount an unlimited money printing scheme?

Let’s put aside any discussion of the dubious wisdom of this plan after 2 similar programs of more limited magnitude failed to make any clear improvement in employment.

ECB OMT

As with the Fed’s QE 3, markets remain positive about the short term effects of the ECB’s OMT. It is believed to have deferred the near term default risk for Spain and Italy. In essence, the ECB prints money and uses it to buy a sovereign nation’s bonds and so keep that countries borrowing costs low. In return, that nation promises to meet a variety of politically unpopular conditions to cut its deficits.

Likely Short Term Effects Of Both Programs

The consensus for the near term is clear. The new QE 3, combined with the effects of the ECB’s version (OMT), it’s a risk-on party time with more risk asset price inflation, regardless of the worsening state of the major economies. That is:

Stocks and other risk assets, especially commodities and related risk currencies, are expected to head higher.

The most likely winners are the popular USD and EUR hedges, like gold and oil, given the enormous long term hit these two most widely held currencies are likely to take. One can debate how much higher most risk assets can go in the near term, and whether or not they’re due for a big pullback longer term. However the long term value of currency hedges is much harder to ignore in this new era of monetary dysentery.

Conversely, safe haven assets and currencies like the USD are going down.

Beyond the coming weeks, things are less clear, though the bias remains, ‘don’t fight the Fed.’

What Might Spoil The Party? The Same Ongoing Threats

US Fiscal Cliff: A failure to resolve the coming fiscal cliff: If US consumers are hit with higher taxes and benefits cuts, lower interest rates won’t do much good in spurring new spending and hiring.

Worsening Data:  The weight of the reality of slowing growth might at some point outweigh the psychological effects of money printing

The EU: Personally, I suggest that the current trust in the EU leadership to keep another crisis at bay for long is grossly misplaced. As we noted in last week’s post, the OMT is no more likely to succeed than prior programs because it’s got the same flaws and doesn’t deal with the EU’s real problems. For a full look at what’s needed to fix the EU and how to identify real solutions from the usual fakes, see 7 CRITERIA FOR DISTINGUISHING REAL EU CRISIS SOLUTIONS FROM FAKES.

Of special near term concern:

Greece

Greece is not able to meet its bailout obligations, so the EU must soon choose between letting Greece default or losing credibility with other bailout nations by not enforcing its own agreement and giving Greece cash. If that happens, how credible is the whole OMT program anyway, which is founded on the assumption that ‘conditionality’ is enforceable?

Spain

The ECB’s OMT has ironically made Spain less willing to take a bailout because its borrowing costs are now lower and it doesn’t want the obligations that would come with a bailout. That means Spain doesn’t reach any near term resolution (no one is dealing with longer term ones, like haircuts for bondholders) until Spain is at risk of default and the EU is back in crisis mode.

Longer term, same old problems doom the EU. See the above articles for details.

Eurogroup Meeting

This past weekend’s meetings may produce some market moving news early in the week.

China

For all its troubles, it’s still the only big economy with significant growth. We’ll the HSBC mfg PMI data, in addition to any unforeseen news on China’s ongoing slowdown and political turmoil.

Likely Longer Term Effects Of Both Programs

The consensus is as bearish as the short term one is bullish

Unlimited money printing devalues currencies.

Inflated asset prices fall once the printing is believed to be slowing or stopping, though anything believed to be a currency hedge like gold, oil, fine art or farmland, should outperform financial assets and may even hold its value barring an economic collapse and runaway deflation.

Sovereign bonds of the big money printers collapse as markets demand higher interest to compensate for being repaid in depreciating currency.

Other Event Risk From This Week’s Calendar

The coming week is a typical mid- month calendar of middling event risk. Top reports include:

• Tuesday: Australia monetary policy meeting minutes, German ZEW sentiment survey
• Wednesday: Japan rate statement and press conference, US building permits, existing home sales
• Thursday: China HSBC flash mfg PMI, French, German, and EU flash mfg and services PMIs, Spain 10 year bond auction, ECB President Draghi speaks, US Philly Fed mfg index

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER.

COMING WEEK: FORGET FUNDAMENTALS-JUST ANSWER ONE QUESTION is a post from: Global Markets

A strategy guide to the coming week for traders and investors focused on the prime market drivers of global forex, stocks, commodities, and other asset markets

This week, like the prior one, is packed with potential tier 1 event risk, both scheduled and unscheduled.

It begins Sunday and Monday with a batch of Chinese data which, if the group reflects the same bullish of bearish them, could be collectively very influential, at least in the early part of the week.  The next big scheduled event is on Wednesday with the German Constitutional Court’s ruling on Europe’s rescue fund, which could rock markets if the court blocks German participation, though most observers believe it won’t. There’s also an Italian 10 year bond auction, which could be influential if it produces any surprises.

Thursday gets even intense with the Federal Reserve’s monetary policy announcement (the likely big event of the week given the stakes). Friday too could move markets, with the U.S. retail sales report and the beginning of the EU Finance Ministers meeting.

In addition, now that markets have had time to digest the major events of last week, the latest ECB moves and US jobs data, we could see delayed reaction to these as well.

Let’s dig in.

1-9.FUNDAMENTAL PICTURE

Central Bank policy remains the focus. Both the Fed and ECB appear ready to double their bets on policies that have done little and risk much.

1. ANTICIPATING FED MEETING RESULTS AND CONSEQUENCES

Given the low chances for genuine economic improvement in global markets, expect markets to continue to focus on the prospects for government aid, which is seen as the only realistic the only realistic support for higher asset prices, however temporary it may be.

Barring opposition from Germany’s constitutional court (deemed unlikely), the ECB and EU already appear set to print money and get rates lower. Key details are missing (surprise! Not). However thus far markets think this news is worth at least a tradable multi-week rally, good enough for now, and just in time with yearend bonus season approaching.

China too is embarking on easing mode.

So now markets await the Fed’s decision at this week’s monthly policy meeting. Even before Friday’s disappointing US jobs report, the consensus was that the Fed would indeed ease, the only question was, how much?

The most convincing argument I read came via Inflation Trader’s post on seeking alpha.com. The crux of the author’s argument was that the best reason against new stimulus was the risk of uncontrollable future inflation, as recently argued in a paper by Dallas Fed Chairman Dr. William White. In his Jackson Hole Speech, Bernanke dismissed the risks as ‘manageable,’ thus rejecting the main reason not to ease. Bernanke’s emphasis on unemployment remaining unacceptably high unless growth started a steady ascent made it clear that the Fed was ready was ready to follow the ECB and PBOC in new easing measures.

Friday’s poor US jobs data only fed this belief, as reflected in the rally in both risk assets (which benefit in the short term from stimulus), the decline in the USD (stimulus is seen as dilutive of USD value) and so also the spike in gold prices (as the two most widely held currencies, the EUR and USD, are both at risk of devaluation via expanded supply from easing programs.)

Consequences From Fed Announcement

While in theory both the EUR and USD should suffer from new stimulus, the ECB’s actions are seen as needed for the EUR’s survival, and so don’t hurt it nearly as much as the Fed’s additional stimulus would hurt the USD. Add that to the overall increase in risk appetite from all the central bank easing and the near term prospects for risk assets and currencies remain as bright as those of safe havens continue to dim.

Whether the Fed’s action feed last week’s rally in risk assets and plunge in safe haven assets, especially the USD, depends on whether Fed actions exceed or disappoint market expectations. Given last week’s price action expectations are already high that the Fed does something big.

• Stocks, gold both way up
• US and German government bond yields, and the USD, down hard

To meet these expectations, we would likely need to see a QE3-level outcome, like $600 bln or more, leaving considerable room for disappointment and / or a “sell the news reaction” once the Fed announces its plans

For timing short term traders, the lead up to the event will likely see big swings die down in the market as few will want to place significant trades ahead of such an important release.

2. MARKET REACTION TO ECB MOVES: WE DO GET FOOLED AGAIN?

This one is all too similar to prior bold EU rescue plans; it just buys a bit of time, and maybe not much of it.

LAP Dancing Mario: Same Old, Same Old…

As with prior EU rescue plans, we see the same essential flaws, and so expect the same results – a return to crisis. I’ve reviewed the fundamental problems many times before, see especially the following 2 articles:  SORRY MARIO, HERE’S WHY THE EU IS FINISHED and 7 CRITERIA FOR DISTINGUISHING REAL EU CRISIS SOLUTIONS FROM FAKES.

Basically, it’s the same LAP (Lend And Pray) plan.

To review and summarize, neither funding nor debtor nations are willing to take the pain needed, have shown no inclination to do so, and hence the endless temporary solutions that avoid the real pain that no one is willing to accept. Specifically:

Unless they’re given guaranteed EU backing, the GIIPS will be driven to default by rising borrowing costs because markets correctly believe they cannot repay their debts

The parties that might provide this backing, EU funding nations lead by Germany, the IMF (the main contributors are reluctant US taxpayers) won’t provide that without means of strict enforcement of strict conditions that these nations are unlikely to meet (and haven’t done so thus far) without the above guarantees.

Even if the GIIPS would accept these conditions (unlikely but possible in time of crisis) they can’t be enforced without the EU becoming the US of Europe and everyone ceding essential sovereign powers of spending and taxation to a central authority. That may well not happen at all, and certainly won’t happen in less than 5-10 years given the details needed to work out, even if everyone were willing to cede sovereignty. They aren’t.

The risks that this central body might behave like Germany terrify the GIIPS, and the chance that this authority could be dominated by the undisciplined GIIPS nations terrifies the inflation-phobic Germans.

Even assuming all were ready, the EU is unlikely to have 5-10 years before one or more sovereign defaults end the EU has we know it.

ECB Averages Down Yet Again

One of the basic rules of good investing is to avoid averaging down, that is, investing more in a losing investment in the belief that you’ve NOW called the bottom, lowered your cost basis, and will turn a losing investment into a winner.

However, that is what the ECB is proposing.

The current ECB plan is STILL just another variation on prior failed plans: More GIIPS borrowing when they can’t afford their current debt load, more ECB/ EU/ national bank buying of this dubious crap, making the final default all that bigger.

Here’s a quick look at some of the highlights of the latest ECB obfuscation

Conditionality? Unclear

Oh yes there will be strict conditions to ensure repayment. These have yet to work, ever.

We see no reason to believe the EU can impose and more importantly enforce conditions on Spain and Italy that it can’t even impose on little Greece without contagion fear.

Unlimited Short Term ECB Buying Of GIIPS Bonds? Unclear

That’s supposed to scare off speculators, just like Bernanke’s promise to backstop US banks calmed markets at the start of the Great Financial Crisis. However Bernanke could print dollars as needed. Draghi can’t, certainly not without risking an exit by the EU’s only primary paymaster, Germany, followed by other funding nations.

So if ECB short term GIIPS bond buying is really to be unlimited, Germany and other funders are likely to bolt, and the EZ as we know it dies. Even if the ECB is serious about unlimited bond buying, that can only (supposedly) happen if debtor nations meet the above (as yet unknown but sure to be painful) conditions, which we doubt. When they don’t, the bond buying supposedly stops, the bonds plunge, and the EU reverts to terminal mode.

However, if he doesn’t mean unlimited bond buying then when that buying stops GIIPS bonds collapse, (only now the ECB and national banks have even more of this crap on their books and the default is even worse)and the EZ as we know it dies.

ECB and IMF To Lose Seniority Over Other Bondholders? Doubt It

The reason these institutions have seniority is that they’re using taxpayer money, while private investors are playing with money they chose to invest of their own free will. It’s hard to believe EU and US politicians will accept standing before their voters and saying they must accept losses in order to help fund banker bonuses.

Current EU Calm Carries Seeds Of Its Own Destruction

The current calm makes Spain and Italy less likely to accept bailouts with enough conditionality to maintain a pretense that they might pay back what they owe. So there won’t be any stabilization of either nation until a crisis hits and there’s no time for anything accept yet another plan to

• Print more money
• Pile on more debt
• Pack the banking system with more bad debt
• Leave the details of conditions and their enforcement for another day

Meanwhile all will hope that someone keeps buying the bonds. That’s likely, but only as long as the ECB is able to do so with newly created (and ultimately debased) Euros.

All this just sounds like Einstein’s definition of insanity, doing the same thing and expecting a different result.

For further details, my favorite pieces on the specifics of the latest ECB plan were from Bruce Krasting and Nomura Bank, see here and here. For my fellow John Mauldin followers, I suspect he’ll have some worthy thoughts coming this week on the topic as well.

In sum, we believe the effects of this plan won’t last and markets will again turn fearful within a few months at most, possibly far sooner.

3. Ongoing GIIPS Bond Sales

If enough traders share the above concerns, GIIPS bond sales could still turn ugly fast, quickly discrediting Draghi’s latest recycled LAP (lend-and-pray) program.

For example, Spain still has 3 sales this month

• 18 September: Bills
• 20 September: Bonds
• 25 September: Bills

As noted last week, Spanish banks continue to hemorrhage cash as Spanish depositors show less confidence in their own banks than the ECB.

4. German Constitutional Court Ruling On ESM Wednesday

The court is expected to rule in favor of German participation in the bailout mechanism and its risk of Euro devaluation. However if the court in any way appears to unexpectedly limit German participation, gains based on the latest rescue plans could quickly disappear. Similarly, given the court’s expected compliance, we risk some ‘sell the news’ profit taking

5. Dutch Election Thursday

This might move markets if anti-bailout parties show unexpected strength, though recent polls suggest that won’t happen (making a surprise that much more a potent market mover).

6. Continued Reaction To US Jobs Report

In sum, last month’s growth in new jobs was an anomaly AND was revised lower, labor participation is falling as more give up trying to find work, and those who have jobs have seen 0% change in hourly earnings. While this confirms the picture of a struggling US economy, it could also give markets and early week boost from the QE 3 hope trade, as long as that hasn’t already been fully priced in already.

7. Reaction To Batch Of China Data & PBOC Easing

China may be slowing, but it’s still the biggest growth machine out there. Data out Sunday and Monday could be bullish for markets as long as it surprises markets. If it surprises to the upside, that is obviously positive. If it’s seriously disappointing, it could attract the ‘buy the stimulus rumor’ crowd, given that China’srecent new easing moves.

8. Greece: Decision Nears

Last week Greek PM pleaded with the EU to release the next tranche of cash despite Greece’s failing to meet the required conditions. See last week’s article, part 10-11 for details.

9. Other Calendar Events

Additional potential market movers from scheduled data include

US: inflation, retail sales, and the UoM consumer confidence reports.

EU: ECOFIN and Eurogroup meetings, which could be used as platforms for market moving announcements.

10. TECHNICAL PICTURE

Here’s the good news and bad news, integrated with the above fundamental picture.

S&P 500 WEEKLY CHART Source: MetaQuotes Software Corp, thesensibleguidetoforex.com

02 sep 090155

The Good News: Technical Picture Undeniably Bullish

• Looking at the bellwether S&P 500 index, it’s hitting monthly closing highs not seen since 2007
• Resistance around 1425 broken
• All moving averages (10 week blue, 20 week yellow, 50 week red, 100 week light blue, 200 week pink) moving up
• Price is firmly in the Double Bollinger Band Buy Zone (area bounded by upper orange and green Bollinger bands, confirming long term momentum intact)

The Bad News: How Much More Upside Can You Justify?

With asset prices this high, much of the stimulus news already baked in, little help expected from genuine fundamental economic data, and the overall trend since 2007 still down (the current high is still a lower high than that of late 2007), the odds for much more upside seem limited, especially considering the fundamental challenges we’ve presented above and in last week’s weekly preview.

This doesn’t mean we’re due for a sharp pullback (although the EU crisis, fiscal cliff, and high asset prices make it quite possible), but it clearly limits the upside potential and raises the temptation to take profits at the first sign of trouble.

Simply put, of the 3 possible outcomes for the near future, up, down, or flat, two don’t justify further long positions. Yet with long term technical indicators bullish, it’s too early to go short, though we’ll be watching indicators on shorter term charts for signs to do so.

Lessons, Conclusions

Risk appetite is alive and well, but there’s plenty of reason to distrust it, and to plan profit taking or short positions on risk assets so that you’re ready when the inevitable pullback comes. Meanwhile we don’t fight the trend, but we’re very cautious about jumping on it now.

Unless you believe a crisis is imminent, the more likely scenario is that risk assets are at the upper end of a trading range. At most, longer term investors may consider attempting to place a buy limit orders for new long positions on those pullbacks, or traders may consider sell limit orders to establish new shorts for riding prices to the lower end of the range.

The central banks behind the most widely held currencies are all in neutral or easing mode, risking the purchasing power of their currencies and any portfolio with too many assets denominated or tied to these currencies. Just as you diversify by asset class and sector, you also want your assets and income stream diversified into the stronger long term currencies.

Few investors have that diversification, mostly because it’s only recently become and obvious problem. There are many simple ways to achieve this to suit a variety of skill levels and risk tolerances.

New Baby Update

Whether you’re a trader or investor, I’ve got some ideas for you in The Sensible Guide To Forex, just published last week.

Thanks to all those who ordered it, feedback so far in both reviews and orders has been very gratifying. My publisher, Wiley & Sons, tells me that the ‘Look Inside’ feature on the book’s Amazon page should be up sometime this week. Wiley was kind enough to allow for an especially detailed Table of Contents, so you’ll be able to get a very good idea of what’s inside just by browsing it, and whatever other parts are available for viewing.

At least one forex broker, Caesartrade.com, will soon be offering a free online course for all those who have the book. I’ll be adding a variety of bonus materials as time permits, including a roughly 50 page pdf paper,Binary Options, Pros and Cons, the most in-depth, objective look at how to use this relatively new instrument and whether it’s right for you. They’ll be available on the book’s companion website, thesensibleguidetoforex.com.

A Little Help, Please?

I’m a novice at book promotion, but that’s also an author’s job. I’m told that reviews can be helpful, so if you’d like to write a review and have any questions on how to post it to Amazon or other appropriate venues, online or otherwise, feel free to contact me via the Contact Us tab at

www. thesensibleguidetoforex.com.

If you’ve other ideas on how to let the investing community know about safer, simpler ways to diversify currency exposure, we’d love to hear from you. Really.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER.

THE COMING WEEK’S TOP 10 MARKET MOVERS is a post from: Global Markets

Oh yes, there was some other data too.

Last week was packed with potentially dramatic event risk. In the end, however markets cared only about whether a given news item influenced the prospects of new central bank easing. It was through this prism that all events were viewed.

1. ECB MEETING: Anticipation of expected bold new action and reaction to the announced moves Thursday were the primary market movers Thursday and Friday.

2. US MONTHLY JOBS DATA

Second tier reports Thursday that hint at the Friday report results were bullish and so contributed to the optimism generated by the ECB. The actual data on Friday stank, but markets liked it, because ECB and Fed stimulus were now more likely than ever.

3. OTHER DATA

Poor data out of China, the US and EU had some secondary short term impact on price action, but in the end it was mostly ignored or seen as positive because it meant more money printing was more likely.

Markets no longer expect any good news about genuine growth prospects. Rather the focus is on government help. Thus risk assets performed extremely well thanks to the disappointing U.S. non-farm payrolls number (which makes new Fed easing more likely) and new ECB stimulus plans.  If the German Constitutional Court approves the rescue fund and the Federal Reserve eases, the rallies could continue.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER.

PRIOR WEEK MARKET MOVERS: ALL EYES ON CENTRAL BANKS is a post from: Global Markets