Entries Tagged as 'Europe'

How to Play the Situations In China and Greece

The following is an excerpt from Private Wealth Advisory...

Stocks are rallying today because of:

1)   Hype and hope of a Greek deal.

2)   China has stopped trading of 49% of stocks and threatened to arrest anyone who is short-selling the market (talk about a backstop!).

Regarding Greece, no deal has been made. Greek PM Tsipras has submitted a proposal for a new deal… which is almost EXACTLY the same as the deal that 61% of the Greek population rejected via referendum last week.

Tsipras has completely backed himself into a corner. He used up a lot of goodwill with EU officials when he let Greece default by staging a referendum for Greek voters AFTER the due date on Greece’s debt.

The voters obviously voted “No” on the EU’s deal… so Tsipras has had to come up with a new proposal. The only thing he can suggest that would possibly sit well with Greek voters is “debt forgiveness,” which Germany has stated it is absolutely opposed to.

So now Tsipras must decide… does take a bad deal (the same one voters said “no” to last week), which will force a popular revolt in Greece (and likely his expulsion from office) or is he the man who takes Greece out of the Eurozone?

 

His finance minister has already quit his post… and doesn’t seem too upset about it. Perhaps Tsipras will follow suit, Greece will elect another PM and the whole charade can start all over again?

Finance.jpg

The Greek drama has engaged in “extend and pretend” for five years now. It’s highly likely that it will continue this time around with Greece accepting a bad deal and plunging further into economic collapse until the next debt problem emerges.

As for China…

Anyone who bothered to look at the actual data coming out of China (the un-massaged data, not the fictitious GDP numbers), knew the China economy was in collapse. It was only a matter of time before its stock bubble joined suit.

Sure enough, the bubble burst, and the Chinese stock market has erased over $3 trillion in wealth in the space of three weeks.

The Chinese Government, which we are told is moving towards free market capitalism, has thus far dealt with the crisis by halting 49% of stocks from trading and threatening to arrest (and likely “disappear”) anyone caught short-selling stocks or somehow promoting market “instability.”

The market is bouncing on this… it’s now coming up against the first line of resistance (blue line) established by the uptrend from late 2014. If we break above that we could even bounce to retest the longer-term bubble bull market trendline (green line).

However, after that we’re heading DOWN in a big way. The bubble has burst. Bubbles NEVER reflate after bursting.

7-10-15-1.png

Crises never unfold in straight lines. Investors forget that when the Tech Bubble burst, stocks were a roller coaster with over EiGHT moves of 16% or greater in the span of six months.

7-10-15-2.jpg

China’s bubble was even larger than the Tech Bubble. The price volatility will be even more severe… but the bubble has definitively burst… and the market will be heading lower in the coming weeks.

In short… the two biggest reasons for the markets to be rallying today (Greece and China) are simply temporary issues. They will resolve, very likely for the worse, in the coming weeks. Smart investors should be using this bounce to prepare for the next wave of the Crisis.

If you’re looking for actionable investment strategies to profit from this trend we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Mover Mike Hit 2,000,000

After an incredible June, Mover Mike hit 2,000,000 page views. I have been blogging since 2004 and it is nice to see that more people are finding this blog. Sometimes, I have considered quitting, thinking why bother, no one reads me. However, conservative fiscally, Libertarian socially, this blog joins many others who don’t like the path the U.S. is on.

No longer can we discuss things rationally and heatedly.  Now it seems the play book says to ignore the message, savage the messenger. We are seeing that currently with Trump and we read that Hillary hasn’t answered the press questions in two weeks. AND…more and more people are considering leaving the country.

Mexico”sends” their unemployed to the U.S.. How long will 93,000,000 unemployed and under employed wait to move south? How long will the drought stricken  in the south west wait to move? What happens when the U.S. becomes like Greece and can’t feed the 43,000,000 on EBT?

Stay tuned, dear reader. I hope to cover it and provide some answers. Thanks for reading Mover Mike

Two Buddies

 

Laugh it up boys!

Laugh it up boys!

The mandate from the 2014 election doesn’t matter as long as these two are buddies.


THERE’S A STORM COMING

I received this email from a respected friend:
I’ll try to make this short and simple, but you know better. I really hope some of you argue with me, because if we all agree I’m more likely wrong.

THERE’S A STORM COMING!!!!! AND WE NEED TO PREPARE.

Is it Katrina, or a polar vortex, an average winter storm, or the perfect storm?

Don’t know. I don’t need to predict or know what winter will be like in detail to believe that winter is coming.

Why do I think this? And plan to get prepared.

First, history. Bear markets ALWAYS follow bull markets. Are we in the 1st or 2nd inning of the current bull? Seems unlikely. Are we in the 7th or 8th? Don’t know, but I’m pretty sure the game will end – in 9 innings, or extra innings, or due to rain.

Second, look around, at geopolitics, at valuations, at rate spreads and bond covenants, at the omnipotence of central bankers (the Fed is leveraged almost 80 to one), at IPO’s, and on and on. Do you see an environment of bottoms or tops?

Do you see an environment of sustainability, or an environment of complacency?

Third, the world has not de-leveraged in the last five years. Debt to GDP has grown. It has been shifted around with some sectors reducing debt and others increasing, but the world’s debt load is greater today than it was before the ’08/’09 crisis, and the cost to carry that debt has probably never been lower. Crisis and bear markets tend to clean out the previous excesses and produce a more robust, sound, and conservative economic environment. I suspect that has not happened.

Fourth, I think the theory that “economic and financial stability creates instability, and instability creates stability” has merit. The financial markets have been remarkably stable for more than two years. This could go on and on, but you get the point.

This is NOT a panic call to sell everything and get short, or run to gold, or cash. This is a call to get PREPARED; professionally and personally. (My wife) and I plan to review our budget and balance sheet over the next few weeks. (My assistant) and I will continue our strategies and disciplines, but with additional attention to preparation for what will eventually come next; what are the best and most secure places to store cash, what asset classes may be diverging from the markets, are we seeing a deflationary or inflationary environment developing. If one wishes to plan for the inevitable, whenever it comes, there are only three time periods one has available; before, during, or after. “After” is not terribly useful or effective. “During” is quite difficult. Now is “before”.

(My wife) asked me, “What brought this on?” Why today and not a week ago? The best answer I have is the culmination of many, many pieces of input that have finally tipped the scale to say PREPARE. Maybe it was the “alerts”, or the chart on world debt levels, or the Fed’s leverage ratio, or continued reading of “The Fourth Turning”, or the complacency of both investors and voters, or Ben Hunt’s call for a peak in central bank influence and credibility, or watching Putin play his game, or a hundred other things. It might be that I see so much benefit to preparation, and very little downside – or so much downside to not preparing. For now, that’s my story, and I’m sticking to it.

Four final thoughts:

1. I learned long ago that governments and large institutions can delay seemingly huge problems almost indefinitely. They may never fix it, but they can delay for what seems like forever. Theirs is a long game, but our game is the markets – and they do cycle.

2. When things go wrong, they often go wrong fast, but the inflection point may be long in coming. Hemmingway’s quote about going bankrupt two ways comes to mind.

3. The last few weeks seems likely to be setting up for a typical excellent buying opportunity in October, or the next bear market. I’m completely open to both possibilities.

4. Over thousands of years we humans have evolved primarily to react immediately to threats to our survival. If we didn’t act immediately we were often dead. These hard wired reactions are more often than not quite unhelpful in the markets. If one plans and prepares when there is no immediate threat, the prepared reaction is likely to be more useful – not always right, but it has a better chance of being appropriate.

Please heed my friend’s message. He takes longer than I do to reach a conclusion such as this, but his thinking is well thought out and he is risk averse.

AIFMD New Regulation New Game

8-30-12-AIFMD

For Alternate Investment Fund Managers (AIFMs) across Europe, this is a defining period. With Alternate Investment Fund Manager’s Directive (AIFMD) soon becoming a reality, European alternate investment fund (AIF) industry is entering a new phase. From marketing to management, governance and administration, the directive is changing every aspect of the AIF industry. While AIFMD is expected to open up new horizons to AIFMs, it will also widen the legal and regulatory requirements. But are the fund managers ready? How are the member states implementing the directive? How is the market responding to the regulated environment?

Any new change brings with it a period of confusion and dilemma. Similarly, in the case of AIFMD too, uncertainties and uneven progress mar the European alternate investment fund industry today. AIFMD is a complex piece of legislation. For European member states as well as for AIFMs, getting a grip of the regulation seems to be a tough task. Though almost all EU member states have transposed AIFMD into national law by 22 July 2013, only 12 member states have completed full legislation process. Member states have revised, improved or scrapped their existing law to accommodate the Europe wide directive, which aims to harmonise and regulate the industry.

For a EU AIFM, the directive will enable them to market their AIFs to EU professional investors in their home state and in other European member states, post authorisation.  However, for non-EU AIFMs who will have to opt for private placement regimes in order to market their funds in EU member states, the situation is a bit more complex. Some member states have imposed additional requirements above the rules laid by the directive. For example, in Germany, the fund management regulation was scrapped and Capital Investment Act was introduced with new rules unique to Germany apart from the AIFMD requirements. They have also introduced new tax provisions along with it. Private placement regime is abolished and AIFMs will need to take approval from the German regulator to market or distribute any kind of AIFs.

While Germany may seem to be very rigid, some countries like Malta offer flexibility and cost advantage. AIFMs who wish to establish their funds in Malta will have 2 fund structures to choose from – alternate investment funds and professional investment funds. They also claim to process the authorisation application faster compared to other countries. Other countries like UK, Ireland, Sweden and Luxembourg also offer comparatively lighter regimes and require AIFMs to comply only with minimum rules laid out by AIFMD.

Ambiguity also prevails in the case of depositary regime. Depositary requirements are driven by a combination of factors like domicile of the AIFM and AIFs and their marketing practices. AIFMD requires all authorized EU AIFMs to appoint an independent depositary for the AIFs it manages. However, for non-EU AIFMs though AIFMD does not mandate appointment of depositary, countries like Germany, France and Denmark are making depositary regime mandatory. There are also variations in rules over appointment of domestic or cross-border depositary.

With such disparities and variations in implementation prevailing, the aim of creating a single market for non-UCITS funds still look distant. The impact of such an environment has created conundrums for AIFMs who will now be burdened with AIFMD as well as regulations of multiple jurisdictions. In the case of non-EU AIFMs there are apprehensions prevailing the proposed abolition of private placements once the passport regime becomes a reality.

According to a recent study by BNY Mellon, only fewer than 20 percent of AIFMs have submitted an application for AIFMD authorisation to their local regulator. The surveys also brought to light the fact that many AIFMs are still unclear or are yet to finalise their plans towards compliance. This slow rate of progress also highlights both the uncertainties and practical challenges the industry is facing while trying to get grips with AIFMD.

After the economic crisis, fund managers are already seeing a huge dip in their revenue. Now with AIFMD becoming a reality, they will also have to bear the cost of compliance. New systems and processes will need to be introduced to comply with risk and compliance requirements. The BNY Mellon survey points that firms expect a cost of around £1,50,000 per institution as a one-off set up cost of compliance. The final cost of compliance may far exceed the number.  With such an impact on the cost structure, fund managers are in a dilemma whether to increase the cost of funds or to absorb the cost to gain market advantage.

The EU AIF market today is at a transitional stage in which confusion and dilemma prevails among AIFMs, regulators and to some extent among investors too. Both EU and non-EU AIFMs are closely monitoring the developments around AIFMD to take appropriate decisions. Market may bear brunt of this state of affairs now but once the directive becomes a reality and obtain more clarity, it will bounce back with vigour. The proposed passport regime, which is expected to become a reality in 2018, will also boost the market and bring back its lost glory.

Note about this guest post:

This is a complicated subject and this further information from Wikipedia explains why this legislation was passed in many countries in Europe

EU fund managers that manage alternative investment funds (essentially hedge funds and private equity funds) (“AIFs”) have not been subject to the same rules to protect the investing public as mutual (including UCITS) and pension funds and their managers. In general, the lack of financial regulation is seen by some to have contributed to the severity of the global financial crisis.

Mike

What Has Obama Wrought?

It appears that the weapons we lost in Libya are now being used in Mali and look at the final scene and the threat to Europe.


What You Don’t Read In The MSM

A sober assessment of Europe: Guest Post: Europe Is Now Sinking Fast
at Zero Hedge.

Copyright © 2007 Mover Mike. Design by Anthony Baggett.