EU Bull / Bear

This posting uses a similar chart to the one in this posting:

https://chiefio.wordpress.com/2013/03/15/bull-vs-bear-market/

So you ought to read it first to get comfortable with the graph and the descriptions.

Some of what I say here will be of the form “Like I said there”…

Here’s a graph of EZU the European Monetary Union oriented ETF Exchange Traded Fund. As this sells in $US and those stocks in it are in Euro terms, it embodies the relative exchange rate changes of the two currencies as well.

EZU Emu-stocks, vs SPY U.S. stocks, vs EWG Germany ETF

EZU Emu-stocks, vs SPY U.S. stocks, vs EWG Germany ETF

The FXE line shows the movement of Euros vs $US. You can see that it generally moves with the stock markets and exaggerates the trends. Minus the currency effects, the EMU area stocks would look more like that S&P line, but with overall a 10% loss from one end to the other. (FXE ends 10% high, so take that zero intercept for EZU and move it down to -10%).

It is also clear that Germany runs up a lot more in “good times” than the rest of the EMUs but comes down hard in bad times (partly from the currency wobble. As this instrument trades in the USA, it likely has some ‘slippage’ vs the actual European markets. (Someday I’ll find a place that lets me make charts like these for other countries in native currencies…)

Overall, conclusions are much like in the prior posting on SPY.

RSI at 80 and it rolls over some months later. At 20 its a bottom / crash buy point. Presently ‘wobbling in the middle’ as ‘dead money’ or fast chart trades. MACD working about the same. Presently barely above zero in a sideways weave. Not much of interest in EMU one stocks. Germany looking like more risk of a ‘big dipper’ than further high peak.

The ADX line down at about 10 is equally saying ‘dead money’. It looks to me like the EU is largely just marking time waiting for something to get better, and it’s not getting better.

To me, that says you can trade Germany and perhaps a couple of others, but mostly the EU is just “dead money stay away”. (I plotted the UK market (EWU) and it was very similar to EZU, so didn’t leave it cluttering up the chart). Exactly ‘which countries’ to trade might be interesting to search out, but I’m not seeing a whole lot of potential, really.

This would likely explain some of the difference in the more ‘negative’ outlook Dirk H. was getting with his models, as they are EMU-centric. (As I understand it). Also, given recent $US strength, his “Gold in Euro terms” will look better than my “Gold in $US terms”. (Flat gold in $US is rising in Euro terms when the $US is rising.) The FXE drops, net, 10% in the last 2 years.

As Japan is in the news for “bugger the Yen” driving stocks up, here’s a similar chart with Japan on it. I’ve included FXB the British Pound and FXY the yen, even though the start at zero in the middle of the time span (so only in the right half of the graph). The EWU UK ticker is on here so you can see it looks a lot like the EZU. The graph is a bit messy, but I think you can pick out the wiggles.

Japan long term vs UK long term

Japan long term vs UK long term

So first off, the gold FXY Yen line rises a lot (as the $US drops relative to it…) and then rolls over at the end. So their ‘cheapen the yen’ is really just joining the Euro and $US in the dropping game. The blue line is the British Pound, so you can see it took a drop all in one go. At the same time that the red UK ETF was in freefall.

Looking at the main ticker, EWJ or Japanese ETF, we’ve had “dead money” for 4 years (even with a rising Yen…) so that ‘lift’ recently is nice, but not exactly a big deal in context. DMI is ‘blue on top’ as is MACD, so “good to be in” EWJ, but strength is low on this time scale. (A huge run up in other time scales, but not ‘long term strong’). MACD Crossing to positive too.

So all in all, money printing and weak currency inflate stocks, but at the expense of the currency inflating.

I think these graphs do show how lack of real economic growth causes stagnation of markets. Yes, you can ‘juice them’ with Central Bank Buggery Of The Currency… for a while. But as the EU graph shows, even that has it’s limits.

FWIW, Brazil and China are also in the “flat to flat-rolling” group and not very interesting either.

With that much of the world “doing nothing much”, it is unclear how much “money printing” can cause real economic growth, or even how long it can continue to inflate asset prices. IMHO, there is way too much emphasis on monetary fixes, and not nearly enough on fiscal fixes ( lower tax burden, more inducement to investment – the real kind not the “Government spending on consumption calling it investment” kind. Only the real kind grows net wealth…)

As long as the USA and EU are in the dumper, Chinese demand will be low as well as Chinese growth. Japan can “cheapen the yen”, but not enough to compete with China (not and stay a rich country). It looks to me like we are entering a stagflation phase and net real growth will be low. Last time that happened, Real Estate and then Collectables were the better choices. Metals are very volatile, driven by markets and, for Gold, central banks. Not stable, but longer term can gain. (IMHO better as trades than long term holdings). In essence, it looks to me like the USA / EU are running out of money / wages to use to buy stuff from China, and Japan has given up on trying to make it as a “high end” maker. China has collected the chips, but without others having some to play on the table, not seeing a lot of “new money” headed their way (even with sending us $Trillions of debt). That debt is ending up in the Government and Banks (via The Fed lending) and not in the US economy. So even the $ Recycle is reaching an ineffective limit. IMHO it would do much much more to “stimulate the US economy” to cut taxes and leave the money in the hands of folks who will spend it locally. I’d also put a nice fat ‘symmetrical tariff’ on any country that has one against us. Oh, and if they have a ‘must have 50% Chinese ownership’ in China, I’d have a “must have same 50% US ownership” here.

The USA stocks are still looking better than the others we’ve looked at; but just how much more corn can we sell to the rest of the world? Especially if they are doing “bugger the currency” and high taxes too?

All in all, I’m just not seeing where the “good stuff” comes from right now.

Usually that means “Stock Pickers Market” and finding special situations. When the aggregates are stagnant, time to look inside the box…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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16 Responses to EU Bull / Bear

  1. DirkH says:

    I’m telling everyone to get out of German stocks NOW. Or S&P, same story. Will write more tomorrow. Expecting a full blown crisis here. Well actually hoping for it :-)

  2. E.M.Smith says:

    Well, given that ‘folks can be slow’ and ‘it is better to be out early than late’ ( my rule is “Early out, late in.”) and the indicators are showing a bit toppy, I’d agree. I’d just caveat it that there is likely another month or two of rise (perhaps with some rolling motion) before the lurch downward is most likely to happen.

    Stop loss orders are your friend. Applied when a ‘top is near’ they get you out automatically yet let you stay in to the day the drop starts. Alternatively, I pick up the trade pace and move to a faster cycle, so I’m “out” on a swing trade or day trade basis already when the “trend trade” reverses trend… (then when BIAS swaps, swap the trend trade being used…)

    The only real downside to that “faster pace” strategy is that you do more work each day for a while and there is a greater risk of getting ‘stuck’ in day trading mode and over trading once a clear trend develops (losing site of the BIAS and TREND and getting fixated on every wiggle and wobble…)

    But clearly right now there is no ‘up trend’ in EU stocks and the US stocks are “long in the tooth” while the Emerging Markets are just ill.

    Heard in the news that this last quarter the Hedge Funds returned 1/2 of the S&P index return.

    Those guy will be getting desperate for making their bonus… ( I wonder how many were long Emerging Markets short USA and got creamed… For many years, in rising trends, that was a nice hedge. Not fully covering E.M. volatility, but helpful. Lately it would be very lossy…)

  3. David says:

    I’d also put a nice fat ‘symmetrical tariff’ on any country that has one against us. Oh, and if they have a ‘must have 50% Chinese ownership’ in China, I’d have a “must have same 50% US ownership” here. ”

    Yes, the Chineese and Arabs are rapidly purchasing SF homes in my area, paying cash, decreasing the percentage of people who live in their homes, moving the rental income out of the local area and the nation. Not good in my view.

  4. DirkH says:

    “This would likely explain some of the difference in the more ‘negative’ outlook Dirk H. was getting with his models, as they are EMU-centric. (As I understand it). ”

    As for my models , the training data set contains roughly a third US stocks, a few far east (Taiwan, Japan) and European stocks, but nearly 2/3 German as I can trade them best due to volume here.
    Validation set is twice as large but of similar composition.
    And everything is expressed in Euros.

    And to my never-ending chagrin my system continues to insist on simple seasonal trading… dumb as a box of bricks. Or smarter than me, don’t know which, probably both.

  5. DirkH says:

    Interesting developments in Cyprus. Confiscation of 6 to 9 percent of deposits. Dunno if only cash or also paper assets.

    EU goes into Totalitarian Summer mode. With Spring come the General Strikes, and the Bulldozers parked in front of banks.
    http://www.zerohedge.com/news/2013-03-16/excavator-parks-outside-cyprus-bank-full-video

  6. adolfogiurfa says:

    Something you must know: Brazil is a CLOSED economy, they do not even allow to import potatoes from the other side of their west frontier, so they pay many dollars to pay for one kilo of potatoes, having a price, at the other side, of US$0.75 per kilo.
    You must not look at south america as a single economic system. Its west side : Chile, Peru and Colombia have totally open economies. (Ecuador, Venezuela, Brazil an Argentina having absolutely closed economies)

  7. E.M.Smith says:

    @DirkH:

    It said the money was ‘invested in the bank’, slightly different from ‘confiscated’ in that there is a vague hope of a someday return (if not much). It also looks like a ‘customer’ left their tractor in front of the bank. Wonder if they have a loan on it ;-)

    @Adolfo:

    One can hope that Chile, Peru, and Columbia manage to influence their closed more socialist neighbors to a ‘better way’; but there is along history of “government change” in S. America in both directions. It would be nice to see some stability in the place…

  8. DirkH says:

    E.M.Smith says:
    16 March 2013 at 8:59 pm
    “It said the money was ‘invested in the bank’, slightly different from ‘confiscated’ in that there is a vague hope of a someday return (if not much).”

    Similar scheme to FDR’s Gold confiscation (paid an artificially low price).
    Looks like only cash was affected.
    As they want to hit the Russians, they don’t intend to give value for money in the form of bank stocks. That will be a pittance.
    New European trend sport – The Summer Bank Run.

  9. tckev says:

    From what I’ve heard and seen (mostly on line) Cypriots with large deposits in local banks are trying to get their cash out ASAP as ‘trust’ is the main issue. Too many rumors of banks getting taken over etc. We’ll see on Tuesday (Monday is a bank holiday – ironic :-) ).
    Those Russians using the Cypriot banks to (allegedly) wash their ill-gotten gains are causing the locals a lot of pain.
    It’s even rattle the British solders out there and therefore the UK government –
    http://www.telegraph.co.uk/finance/financialcrisis/9935242/Cyprus-bail-out-risks-UK-troops-savings.html

  10. Sera says:

    “if you can do this once, you can do it again. if you can confiscate 10 percent of a bank customer’s money, you can confiscate 25, 50 or even 100 percent. I now believe we will see worse as the panic increases, with politicians desperately trying to keep the EUR alive.
    This is full-blown socialism and I still cannot believe this really happened.”

    http://www.tradingfloor.com/posts/cyprus-bailout-major-game-changer-1728597128

  11. E.M.Smith says:

    @Sera:

    I know if I had any money in a Greek bank, I’d be yanking it NOW. In any “similar” situation country (Spain) I’d be yanking it NOW. In any part of the EMU zone, I’d be yanking it “at a reasonable rate”…

    UK I’d likely leave it in the bank. I think they know what damage this does and what a national run on the bank means…

    Swiss and Swedish banks ought to have a good year…

  12. Petrossa says:

    It was apparently the only thing the Russian mafia accepted. Anyway if Cyprus where to let the Russians cough up the deficit they’d need to confiscate 30% of all accounts above 100.000 euro. I guess if the Cypriotic government where to propose that, a lot of them would find a horse head in their beds.

  13. DirkH says:

    Petrossa; Schäuble and IMF demanded 40%.
    http://www.zerohedge.com/news/2013-03-16/germany-and-imfs-initial-deposit-haircut-demand-40-total
    Might have been part of normal haggling, though.

  14. jim2 says:

    I experienced a 40% loss in my IRA the last major leg down. I am in the green again. I have been > 90% in cash since early January. I don’t have time to monitor my portfolio during the day and have tried sell stops and options with mixed success. The market takes the stairs up and the elevator down and I don’t want my IRA on the elevator. I think the markets will tend to do well as long as governments around the world prop them up, at least until inflation hits or there is some disruptive event in Europe, the Middle East, or wherever. I don’t see any fundamental reason for them to be as good as they are right now, though.

  15. p.g.sharrow says:

    @DirkH, Willy Sutton said: “He robbed banks because, that was where the money was.” Politicians can only steal from those that have saved. And where have the savers stored their money? Banks. Very easy to “Tax” bank deposits. pg

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