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Mega gold scandal in China

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30.06.2020 – Special Report. Raised eyebrows at gold bugs: A new counterfeiting scandal shakes the precious metal market. The Kingold affair is probably the biggest gold scam ever. The financial world is amazed by the machinations in China. The question is how high the proportion of counterfeit precious metal in the People’s Republic really is. We examine the consequences for the gold market.

Fake gold as collateral

Massive gold scam in the Middle Kingdom: More than a dozen financial institutions in China have lent around 20 billion yuan or around 2.8 billion dollars to Kingold over a period of five years. They received gold as collateral. So they thought. But the collateral was gilded copper. The case was uncovered by the business paper “Caixin”. Probably the recently published case is one of the reasons for the recent setback in the gold price.

At least 4 percent of Chinese reserves falsified

According to the report, Wuhan Kingold Jewelry Inc. has used a total of 83 tons of fake gold as collateral to obtain fresh cash. This quantity represents about 22 percent of the annual production in the Middle Kingdom. In total, around 4 percent of the Chinese gold reserves reported for 2019 were thus fake. This could only be the tip of the iceberg – because in Kingold’s case the People’s Liberation Army is apparently involved. And no one in China dares to dig deeper into the matter. This is how Kingold CEO and major shareholder Jia Zhihong used to manage mines owned by the army. Yes, there are mines in China. According to “Caixin” there was a similar case in 2016 in the northwestern province of Shaanxi, where the gold bars turned out to be tungsten products.
Kingold – the name probably does not remind by chance of Kinross Gold, one of the largest gold mine operators in the world – is the largest private gold processor in the Chinese province of Hubei and listed on the Nasdaq. Kingold burned a total of 16 billion borrowed yuan, or around 2 billion euros; the lenders are sitting on bounced loans and counterfeit bars. The scandal came to light in February when one of the financiers, the Dongguan Trust, tried to cash in the gold because of outstanding loans. In May, the Minsheng Trust finally discovered that its bars were also counterfeit. As late as June, Minsheng Kingold took Kingold to task: The company’s chairman flatly denied the forgery and pointed out that the low purity was the fault of a supplier. And how could the gold be counterfeit if insurance companies had taken out cover? They refused to pay compensation to the cheated financial companies – Kingold had been damaged and the company had not reported any damage. By the way, none of the cheated funds came from the province of Wubei, where Kingold’s links with the army and the dangers they posed were apparently well known.

The market still trusts the stock figures

But does this mean that the price of gold will now come to its knees? Not at all. The damage is limited to the system of Chinese shadow banks. As long as non-state institutions in China have been tricked and no more fraud of this kind is uncovered, the level of official gold reserves in the market should not be seriously questioned. However, if new fraud of this magnitude were to come to light, it could quickly put a heavy damper on the price of gold and bring some funds to their knees – even internationally.

That speaks for gold

Currently, however, there is still much in favour of the yellow metal. It is not clear whether the global economy will quickly come out of the deflationary corona recession. And whether at some point the massive aid programs against the corona lockdown will not turn into hyper-inflation. In both cases, gold helps as a store of value. In times of revolution, paper money is always threatened with a loss in value – only hard assets such as gold, silver, land, food, fuel and weapons are then in demand.

Goldman and Bank of America see new price record

This is compounded by an expansive monetary policy. No wonder that Goldman Sachs has just announced a new record price for gold on a 12-month horizon – it is expected to reach 2000 dollars. The Goldman Sachs cited the devaluation of the dollar and ultra-low interest rates as reasons. The Bank of America sounded the same horn, pointing to resistance levels at $1,800 and $1,900 an ounce. If this is broken, new highs until the end of 2020 are likely. As fundamental reasons, the BoA pointed to the hesitant reopening of the economy and the again increasing number of corona cases.

Cup with handle

We think: All these are rather tentative classifications. Because if you look at the long-term chart since the 2011 record of around 1,909, it looks very much like a cup with a handle. And if we are correct in our reference to these basics of chart analysis, then gold would run sideways for a while at the old high and then fizz upwards like a rocket. Let’s wait and see.

Edison Investment Research takes a similar view: a price of $ 3,000 an ounce is possible, specifically: $ 3,281. For the investment boutique, this house mark results from the gutting of the dollar by the Federal Reserve in the course of the QEInfinity, i.e. the almost endless buying up of US Treasuries.

Bernstein-Bank wishes successful trades and investments!


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Morning Stock News

The pound is flying into the abyss

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Gold   1693,50
(-4,44%)

EURUSD   1,0799
( -3,92%)

DJIA  24115
(-5,39%)

OIL.WTI  25,095
(-36,66%)

DAX   10609
(-13,65%)

Monday is starting well for stock markets. Perhaps, due to the lack of serious coronavirus news at the weekend, it inspires traders. Especially in the U.S. over the past two days, the number of detected cases is falling, although many believe that over the weekend, simply this issue receives less attention.


GPB/USD

GPBUSD

The US Federal Reserve is very concerned about the condition of banks. According to the results of annual stress tests, it was decided to ban the thirty largest financial institutions from buying back shares until September. All this will lead to regulation of the capital of these companies, lower dividend payments, as well as easier recovery from the crisis in case of a second wave of pandemic. The S&P500 index rises to 3040 on the positive evaluation of the economic recovery in the U.S., which is more than 1% above the opening price, the DAX closed at 12232 and rose by 1.18%.


POUND STERLING

The situation at GBP/USD is much worse than at EUR/USD. On the eve of the next negotiations on the Brexit, the pound is declining and is moving towards the nearest support level at 1.21. The idea is created that the Bank of England will have to change its monetary policy up to negative rates for the inflow of large capital into the country, which is very waiting for the financial sector. Such actions can lead to high volatility in the markets, as well as attract speculators. On Monday the price of the pair GBP/USD was traded at 1.2280.


Oil

The price of WTI oil rose by more than 3% during the trading on Monday. As soon as the markets read any positive news about the fight against COVID-19 or the recovery of the economy, prices immediately gain momentum. Investors have switched their attention to possible stimulation of Chinese economy to support the necessary level of liquidity. If the world’s largest oil importer, China, goes on well, we will see great growth in black gold in the near future.


Gold

Gold holds its ground and is not going to give up at all. No one will be surprised that the price of gold will reach $1800 per ounce and will go higher. Everybody is ready for this and just waiting for a certain impulse. Perhaps, serious macroeconomic statistics will be a driver for such growth. The price per ounce on Monday is $1769.


What’s waiting for us today?

03.00 China Productive Sector Business Activity Index for June
08.00 UK GDP since the beginning of the year
18.30 Speech by Mr. Powell, Head of the US Federal Reserve.


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Morning Stock News

Why do banks buy gold again?

By | News | No Comments

Gold   1693,50
(-4,37%)

EURUSD   1,0799
( -3,73%)

DJIA  24115
(-3,15%)

OIL.WTI  25,095
(-34,22%)

DAX   10609
(-12,04%)

Last trade week showed that the economy is far from recovery. The fears are only growing. Macroeconomic statistics are getting better every week and increasing investors’ confidence in the recovery, but more and more questions arise as to what will happen if the coronavirus does not retreat, but returns with even greater force.


Dow Jones

Dow Jones

What happens if the second wave comes, nobody knows. But countries are taking down the isolation and trying their best to get things back to the way they were. In any case, the economy will gain momentum and the financial system will become more stable. This week does not contain any significant events. Investors will continue to watch the pandemic situation. On Friday the S&P500 index fell by 2.4% and closed at 3009 and came to the important level of 3000. The DAX index closed 0.79% lower, at 12089.


Euro

The EUR/USD pair closes on Friday at 1.1217 near the lower boundary of the trading range. There is no clearly defined trend yet. It remains to observe how the exit from the sideways will take place. At the current stage the bulls have more chances to break through the level of May highs at 1.14. The economic situation in Europe is improving, which gives reason to buy the Euro.


Gold

Friday ends for gold with excellent growth to $1769 per ounce. The next rally is likely to target at $1850 and above. Some banks have already started building up their gold reserves heavily, apparently preparing for another wave of crisis. Usually, banks, using their statistics, are among the first to feel the approaching problems. Buying gold will allow them to save their assets and stay in difficult economic situation. Such purchases can greatly increase the price of gold up to $2100 per ounce and above. Meanwhile, the bulls are gathering strength to storm the level of $1850 and above, which will be a breakthrough of the psychological barrier.


What’s waiting for us today?

01.50 Retail sales volume in Japan since the beginning of the year
14.00 Consumer price index in Germany for June
16.00 US Real Estate Work in Progress Index for May


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Morning Stock News

When will the bitcoin be worth $15,000?

By | News | No Comments

Gold   1693,50
(-3,96%)

EURUSD   1,0799
( -3,70%)

DJIA  24115
(-5,76%)

OIL.WTI  25,095
(-35,69%)

DAX   10609
(-13,96%)

The third trading week of June ends in mixed sentiments. On the one hand, we see that the governments of the leading countries are doing everything possible to prevent a deep crisis, on the other hand, the economy is not performing as it should. Is it probably just a matter of time?


BTC/USD

BTCUSD

The latest unemployment data in the US indicates an improvement. The number of initial applications turned out to be better than forecast, but there are still quite a few unemployed. All these expenditures put a lot of pressure on the budget and force the government to use additional resources. At this stage, Europe is doing better than the US. The DAX index is closing at 12177, which is 0.69% higher than the previous value. The S&P500 index is up 0.3% and trades at 3060.


Euro

The Euro remains in the range and is likely to correct to the level of 1.10. There are no strong data for the growth of the EUR/USD pair, and fears of a sharp increase in the infection of COVID-19 and a possible second wave are forcing investors to move into the U.S. dollar, which strengthens its position in the market. On Thursday, the pair EUR/USD traded at 1.1230.


Gold

Yesterday the precious metal price made new yearly highs. Of course, it is not so easy to stay at such levels, so the correction was inevitable. Now the price is at $1760 per ounce, which is above the serious support line of $1750. This week, most likely, there will be no serious movements and we will see consolidation. The bulls will be gathering strength for the next breakthrough.


Bitcoin

Bitcoin has been traded in the range of $9,000 to $10,000 for a month. Traders relax and place stops at the nearest levels. Summer is not the most interesting time for trading. Volumes and activity are decreasing. Entering the market of a large player can quickly throw out these stops and bring the price to levels up to $15000 per bitcoin. Also, a sharp buyback of the coin from the level 9000 suggests that someone likes this price very much and does not want to see the Bitcoin below.


What’s waiting for us today?

09.00 ECB Chairman Christine Lagarde will deliver a speech.
14.30 Expenses for personal consumption in the USA for May
14.30 University of Michigan USA Consumer Confidence Index for June


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

dollar

The end of the Dollar

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25.06.2020 – Special Report. There’s life in the old dog yet. But lately, the prophecies that the Greenback is heading for his end have become more frequent. The arguments sound plausible: the reasons for the possible end are the excessive monetary policy in the US and the global corona shock. We shed light on the arguments of the bears.

Turning Point March 23

Those who do not believe in paper money bet on precious metals. Ergo, it is mainly the gold bugs that have been speaking out recently with warnings about the end of the dollar. Alasdair Macleod of GoldMoney.com, for example, sees 23 March as a decisive turning point in the fate of the US currency – and as the possible beginning of the end. On the 23rd, the Trade Weighted Dollar Index (TWI) reached its high for the time being, while the previously fallen stocks, gold, silver and copper moved up. On this day, something changed: Either the market decided that economic growth in the USA and the rest of the world would continue after the corona lockdown. Or that the purchasing power of the dollar would decline.

turning point

The new banking crisis

GoldMoney.com went on to say that it is unlikely that the US banking system will survive the current disruption to industry supply chains without damage. The banks are heavily in debt and fear of credit failure is growing – which is why financial institutions are reluctant to lend money to each other. Despite the massive interventions of the Fed, the liquidity situation of the financial institutions remains problematic, as is shown by the use of overnight repos in the amount of 20 to 100 billion dollars. Most systemically important banks around the world are currently worse off at the time of the Lehman crisis, according to GoldMoney.com.

End of 2020 the dollar is history

The dollar could fail completely by the end of the year. And this is how the end of the greenback will be: a long period of declining purchasing power, followed by a sudden collapse when people reject the currency completely. The second phase usually lasts six months. Then not only the domestic customers will be able to withdraw their money from their accounts. But also international investors, who hold around 25 trillion dollars in securities and accounts. And if foreign countries no longer buy US Treasuries, the Fed would no longer be able to finance the deficit, Macleod concluded.

Money supply kills purchasing power

Another analyst also recently warned against a move away from the dollar – triggered by the gutting of intrinsic value in the course of the massive expansion of the money supply. Tad Rivelle is Chief Investment Officer at TCW Funds and MetWest Funds and manages around 180 billion dollars. And he stated that the Fed created billions out of nothing and massively expanded its balance sheet.

Source: Federal Reserve
This form of “Modern Monetary Theory”, with the almost unliminated flooding of money by issuing government securities that yield almost no interest, only works as long as the other side is willing to invest its assets in dollars instead of, for example, in commercial real estate or in currencies from emerging markets. This works as long as collective expectations are deflationary – then even a zero is attractive as an interest rate.

Beware of stagflation

But what happens later? Rivelle does not believe that dropping money from a helicopter will stabilize the economy on a broad basis. The shutdowns and the accompanying distortions in consumer preferences are likely to affect several sectors for a while: Restaurants, retail, energy, tourism, hospitals, aircraft construction, gyms and commercial real estate. The Fed has full control over the supply of greenbacks, but not over demand. All in all, the recovery from the Corona crisis will take an enormous amount of time – and the world after that will resemble the stagflation of the 1970s. In other words: a stagnating economy and rising inflation. If the dollar is not needed in an ailing economy and at the same time the money supply increases incredibly, people will turn away from a currency that offers less and less purchasing power.

The end is near

Egon von Greyerz from GoldSwitzerland.com also warned against an endgame. The dollar cycle, which has lasted for 50 years, had reached its end. During this time, the Greenback has lost 50 percent against the DM/Euro and 78 percent against the Swiss Franc. The US debt had increased from 400 billion dollars to 26 trillion since 1971. Unemployment in the US had reached almost 30 percent, according to the International Labour Organisation, almost 50 percent of workers in developing countries could lose their jobs. Thousands of companies are likely to topple over. There was no solution to a debt problem in a world that was collectively bankrupt, the report said. Almost all assets are likely to collapse, including stocks and real estate. First, the world will experience a hyperinflationary explosion, followed by a deflationary implosion. Accompanied by social unrest and probably wars.

Our conclusion: In fact, the arguments of the dollar opponents weigh heavily. But even bears can be mistaken. But the question is whether the US will emerge from recession faster than the rest of the world. Which should boost demand for the dollar against other currencies. Especially in the world’s largest economy, there is a huge backlog of demand – which means that the recovery on the stock markets would actually be an advance on the return to normality. Corona remains an important factor: if a vaccine or effective medicine is found, the global economy will quickly pick up strongly. With the tax revenues that would then bubble up, the mountain of debt could be paid off and the currency stabilized. The Bernstein-Bank keeps the matter in view for you and wishes you successful trades and investments.


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Morning Stock News

How bad can the stock market fall?

By | News | No Comments

Gold   1693,50
(-3,78%)

EURUSD   1,0799
( -4,04%)

DJIA  24115
(-5,07%)

OIL.WTI  25,095
(-34,05%)

DAX   10609
(-12,63%)

There is a coronavirus after all. Wednesday has shown us that investors are much more afraid of the second wave than expected. On Wednesday, California, Florida and Texas, one of the four largest states in the United States, reported a record number of COVID-19 infections.


S&P500

S&P500

The current situation shows that there are quite a few options left. On Wednesday, due to fear of a second wave of the epidemic, markets are losing ground on all fronts. Many investors assess the situation so negatively that they are waiting for the second “bottom”. The fear turned out to be much stronger. The DAX index closed 3.4% lower, at 12093, the S&P500 index is close to 3000, which is a strong support level at the moment.


Euro

Yesterday’s results on macroeconomic statistics show that the EU economy is beginning to recover. Almost all the data came out better than predicted, but so far it has not affected the price of EUR/USD. It is important for us that Europe is beginning to recover and if you look at a pair of months ahead, the euro should try to move out of the range up. On Wednesday, due to fears of a second wave of infection, the dollar is strengthening, while EUR/USD is trading at 1.1260.


Gold

Gold is well established above $1750 per ounce and continues to grow. Our forecast remains the same, and we are still waiting for the breakthrough of $1800. Gold now has the best growth potential in the entire financial sector.


Oil

Oil reacts very sharply to changes in the people infected. As soon as it was reported that a pandemic was going on in the United States the price of WTI oil has gone very sharply below $40 per barrel. The oil market is the weakest at the moment, because it depends on virtually all financial indicators, as well as the ongoing COVID-19 pandemic. In the near future, the price may recover to $40 per barrel, but this requires a solid base and good statistics.


What’s waiting for us today?

14.30 Base orders for durable goods in the USA for May
14.30 US GDP for the 1st quarter of 2020
14.30 Number of initial applications for unemployment in the United States


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Morning Stock News

The US dollar is preparing for a collapse.

By | News | No Comments

Gold   1693,50
(-4,15%)

EURUSD   1,0799
( -4,50%)

DJIA  24115
(-7,29%)

OIL.WTI  25,095
(-37,20%)

DAX   10609
(-14,79%)

Apparently, Donald Trump’s political campaign is starting now. On Tuesday, the US president made it clear that the trade agreement with China remains in force and the countries will continue to follow it. This means that the January agreements to suspend tariffs on Chinese imports will continue to be in force and the “trade war” will not happen yet.


DAX

DAX

As we thought, in the United States everything will be relatively fine before the election. The economy will be pumped with money, although the growth of COVID-19 is not going to go down. On Tuesday, the S&P500 is up more than 1% and trading at 3148.
There are new signs of economic recovery in the European Union, after a serious drop in production and sales due to quarantine in March and April. Consolidated PMI is rising, which indicates positive expectations of production growth and business confidence in the markets. This allowed the DAX to rise 2.1% on Tuesday to a two-week high.


Euro

Euro shows excellent dynamics since the beginning of the week. The US dollar has not yet been able to resist the main currency and is losing positions at a good pace. The Euro has a serious resistance level at 1.14 and a psychological level at 1.15. Many large analytical companies believe that the fate of the dollar is predetermined and the exchange rate may fall heavily, down to 35%, due to possible current account deficit associated with active budget stimulation. On Tuesday, EUR/USD rose to the level of 1.1340 due to concerns about problems with the American currency.


Gold

The resistance level at $1750 per ounce became a support on Tuesday. The price of gold pushed back from that level and left even higher, breaking through its annual high. Fearing a second wave of COVID-19 infections, many investors are nervous and are leaving for safe haven assets. Next, gold should go into correction. It is likely to happen at $1800 per ounce.


What’s waiting for us today?

04.00 Decision on interest rate of reserve bank of New Zealand
10.00 IFO Business Climate Index in Germany for June
16.30 US crude oil reserves


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Crisis trading

Caution before the end of the quarter

By | News | No Comments

23.06.2020 – Special Report. Soon prices will slide – at least according to Goldman Sachs, JPMorgan and the hedge fund GMO. Although there are constant warnings from one side or the other in the eternal battle between bull and bear, the most recent speeches seem particularly well-founded. Particularly in view of the date 30 June. We analyse the background.

Rebalancing of funds at end of quarter

Goldman Sachs had just warned that pension funds in the USA would have to sell shares worth 76 billion in the course of a “Quarter End Rebalancing”. This would be the third largest sum of all time after March 2020 and December 2018, both of which, incidentally, were quite volatile times on the stock market.
The background to this is that funds have to constantly loosen up cash, especially in order to be able to stem payouts at the end of the quarter. But they also have to sell in order to meet their own investment standards – in other words, to maintain the required equity ratio in the overall investment. About a 60/40 of stocks and government bonds. And after the recent rise in the stock market since March and the associated increase in the valuation of shares in a fund, this can only mean a sale.

JPMorgan sees sale of 170 billion dollars

JP Morgan has now gone one better: According to the report, shares worth 170 billion dollars are available for sale by the end of the quarter on 30 June. In his latest report entitled “Flows and Liquidity”, analyst Nikolas Panagirtzoglou said that a small correction was imminent. Incidentally, he had correctly predicted the return of 1.1 trillion dollars to the market since March 23.
In view of the ongoing stock market rally, JPM judged, “not only has the continuation of the equity market rally into June naturally eroded all of the previously estimated positive equity rebalancing flow, but it has likely created a need for negative rebalancing flow, i.e. equity selling, of around $170bn into the current month/quarter end. Panagirtzoglou took a closer look at five market players for his analysis: Investment funds, US pension funds, the Norwegian sovereign wealth fund of Norges Bank, the Swiss National Bank and the Japanese government pension fund GPIF.

Doomsday scenario from hedge funds

Regardless of a possible rebalancing of funds, one of the best-known Wall Street bulls has just taken the bear’s side: The British star investor Robert Jeremy Goltho Grantham, co-founder and co-chief investment strategist of Grantham, Mayo, & van Otterloo (GMO) in Boston. The hedge fund holds around 75 billion dollars of assets under management.
In a letter to his clients, Grantham wrote “we have never lived in a period where the future was so uncertain” and yet “the market is 10% below its previous high in January when, superficially at least, everything seemed fine in economics and finance. And if not “fine,” well, good enough. The future paths include many that could change corporate profitability, growth, and many aspects of capitalism, society, and the global political scene. In short, the future has never been so uncertain. In these unusual times everything could change – the profit situation of corporations, politics and society. So it is not fitting that the market is only about 10 percent below its all-time highs.

Stock market and real economy decoupled

The investment veteran admitted that he had lost faith in the upside case. Never before had the real economy and the financial market been so far apart. Specifically: “the current P/E on the U.S. market is in the top 10% of its history… the U.S. economy in contrast is in its worst 10%, perhaps even the worst 1%… This is apparently one of the most impressive mismatches in history. Ergo: While the stock market is in the top 10% of its history, the real economy is in the worst 1% of its history.
Grantham further told the FT: “The Covid-19 pandemic “should have generated enhanced respect for risk and it hasn’t. It has caused quite the reverse.” So no respect for risk in the stock market. As a result, GMO cut its net exposure to the global stock market from 55 to 25 percent. According to the “Financial Times” the share of American stocks slid from a net 3 to 4 percent to a short position of 5 percent.

This time everything is different

The current events are completely different from anything that has happened before, Grantham continued. Even before the Corona crisis, the USA and the world had already had problems due to the climate, population growth and a falling gross domestic product. In addition, the USA had the highest level of debt ever in the world. And then the virus struck.
The economy is now contracting much more strongly than it did during the Great Depression – the slide in US gross domestic product now lasted only four weeks, whereas it had taken four years during the Great Depression. And unlike 1989 Japan, 2000 Tech (U.S.) and 2008 (USA and Europe), Corona is now a truly global issue. Hope for a vaccine remains, but there is no effective protection against viruses. At the same time, the wave of major insolvencies has only just begun, as Hertz shows. Although the unparalleled intervention of the central banks has obscured the economic realities, this will not last long. With regard to the unrest in the USA, Graham added, “there are more things going wrong than normal”.

Possible crash of 50 percent

And then he had a house number elicited for a possible crash: “if you look back in two to three years and this market turns around and drops 50%, the history books will say ‘That looked like one of the great warnings of all time. It was pretty obvious it was destined to end badly.” So the market could lose a good 50% in the next two to three years.
GMO had been right in several previous crises: In 1987, for example, the fund exited the Japanese stock market at a 45-fold valuation – only to see the price-earnings ratio rise to 65. But before a 30-year downtrend set in. In 1998, GMO bid farewell to the tech bubble at 21x, which blew up to 35x – only to plunge 50 percent. And in 2007 the fund withdrew from the housing bubble. So we are dealing with very clever analysts.
Our conclusion: It is clear that the market is currently being driven mainly by the air money of the Federal Reserve and other central banks. However, it is unclear whether the recovery of the real economy in the US and around the world has already begun in a serious manner or not. The date of June 30 remains – you should keep a serious eye on fund rebalancing.
The Bernstein Bank wishes successful trades and investments!


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Morning Stock News

Market is gaining momentum. It’s the dollar’s fault?

By | News | No Comments

Gold   1693,50
(-3,45%)

EURUSD   1,0799
( -4,11%)

DJIA  24115
(-7,13%)

OIL.WTI  25,095
(-38,13%)

DAX   10609
(-14,01%)

The new trading week turns out to be quite interesting. The news about COVID-19 distribution is limited to dry statistics. Only WHO beats the alarm and registers a record 183 thousand infections per day. Does the virus not affect the economy anymore?


Gold

Gold

Apparently, investors have realized that in the current situation, as long as there are huge amounts of stimulus, markets will stay afloat in any situation. However, this state can be shaken at any moment, as soon as the help program starts to wrap up. Europe cannot deal with its internal problems in any way. In such a situation, the DAX will remain in a sideways trend until the EU Council can find consensus on a recovery fund. The American market is more and more interesting. After the fall at the opening, the S&P500 index started to gain momentum. Investors are ready to buy further. It is important that it is still above 3000, as well as above the daily SMA200. Probably, the growth of the American market will continue. Still, the elections are ahead and the political machine will hold the economy by all means.


Euro

Due to the weakness of the US dollar, the Euro is showing positive growth on Monday. However, the sideways trend is not canceled yet. The European currency has found a comfortable zone and is likely to remain in this range in the near future. On Monday, the pair EUR/USD rose to 1.1260.


Oil

WTI oil has come close to the resistance level of $40 per barrel and is trying to consolidate higher. The news background has a favorable effect on the price. Governments continue to soften quarantine measures, which stimulates consumption. Macroeconomic data also has a positive impact on the price. The growth will continue in the near future.


Gold

As we estimated, the gold is trying to break through the resistance level at $1750 per ounce on Monday. All it needs to do is hold on above that level. The dollar is very weak now and the move to the level of $1800 is quite close.


What’s waiting for us today?

09.30 Markit Manufacturing Index in Germany for June
10.30 Markit UK Service Sector Business Activity Index for June
16.00 US Richmond Manufacturing Index for June


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Morning Stock News

The market is filled with optimism. Does gold give a signal?

By | News | No Comments

Gold   1693,50
(-2,83%)

EURUSD   1,0799
( -3,37%)

DJIA  24115
(-6,28%)

OIL.WTI  25,095
(-36,68%)

DAX   10609
(-13,11%)

The trading week ended in a minor note. There’s absolutely not enough current news to move the price up. Macrostatistics shows that the recession caused by the coronavirus was stronger than the 2008-2009 recession.


S&P500

S&P500

While investors on the stock market are in a state of euphoria and believe that the situation in the economy is quickly normalizing given the huge financial assistance from central banks and the government. So far it is difficult to judge, as the current levels of the economy are levels of “great recession”. The S&P500 closed lower by 0.56% at 3098, while the DAX rose by 0.4% to 12330.


Euro

After the EU Council meeting, many comments on the current economic situation were received. So far it is clear that the council is not able to agree on a recovery fund, and negotiations are postponed until July. If you look at the chart of the pair, you can see that the price makes lower highs and lower lows. From this we can assume that a wedge is forming. Probably, the downward movement will continue. The pair EUR/USD closed at 1.1176 on Friday. There is a strong level below 1.10 and it is likely to go there.


BRITISH POUND

The pound can’t get out of the downward trend in any way. Bad results of the negotiations on Brexit pushes the Bank of England away from possible introduction of negative interest rates. The risk of the GBP/USD pair price leaving to the level of 1.21 is increasing. There are no prospects for buying yet.


Gold

On Friday, gold rose by more than 1%. And that’s in just one day. This situation shows the power of bulls. Probably, in the near future there will be a breakthrough of the resistance level of $1750 per ounce and an attempt to get out of the sidewall. The current price of gold is $1742, which is very close.


What’s waiting for us today?

03.30 National Bank of China base credit rate
14.00 Statement by Bundesbank Head Weidmann
16.00 U.S. secondary housing market sales in May


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

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