InvestMacro Forex News

Article by Investazor.com

USDJPY had a downfall last week after the Japanese economy showed some signs of strength. The household spending improved with a rate of 1.1% and the expected value was 0.5%.  The most pleasant surprises were the industrial production and retail sales with both of them being published above expectations. Another important indicator that didn’t disappoint was Tokyo Core CPI that also came above expectations proving that “Abenomics” is making some progress.

Also, the political turmoil from Ukraine was a factor that led to the appreciation of the yen. In this kind of situations when uncertainty reigns, investors prefer safe haven assets and the Japanese yen is one of them. The US macro indicators were mixed but the markets are seeing only the good part right now as S&P 500 managed to hit a new record level.

Economic Calendar

Capital Spending q/y (6:50 GTM)-Sunday. The indicator measures the change in total value of new capital expenditures made by businesses and it is a leading indicator of economic health. It is forecasted an increase of 5.1%, so it will be interesting to see if the Nippon economy can maintain the level it showed last week.

Monetary Base (6:50 GTM)-Monday. It is the change in total quantity of domestic currency in circulation and current account deposit held at the BOJ. This is a low impact indicator. It is expected for the monetary base to rise with 54.2% this month.

The post USD/JPY Forecast March 3-7 appeared first on investazor.com.

Article by Investazor.com

Euro managed to close the 4^th week on positive ground. Even though last week didn’t start very good because of the low German economic data things have changed in the second half. The 0.8% inflation has risen investor’s optimism and that was seen also on the EURUSD chart. The Euro has passed again above 1.38 key level. Even though it didn’t close the day and week above this level it still a big step for the European single currency.

Next week’s economic calendar is full with important releases and events. Continue reading our article to see what the most expected indicators are and what technical analysis suggests.

Economic Calendar

Monday:

Spanish Manufacturing PMI (08:15 GMT) – This economic indicator for the Spanish Manufacturing sector has surprised the market with the first two releases of this year, above expectations. In February it was published 52.2 and it is expected for Monday to be even higher at 53.2.

Italian Manufacturing PMI (08:45 GMT) – 30 minutes after the Spanish PMI it is expected to be released the Italian one. Italy had a very good January release but it didn’t keep the same line for February. Last month the Manufacturing PMI was released 53.1, which was 1.1 points under estimates. This month the expectations are lowered to 53.3.

ECB President Draghi Speaks (14:00 GMT) – He is due to testify before the Committee on Economic and Monetary Affairs of the European Parliament, in Brussels.

ISM Manufacturing PMI (15:00 GMT) – This is one of the top leading indicators from USA. In January its release didn’t brought any surprise. In February it was almost 5 points lower than its estimates. For Monday the expectations are lowered from 56.2 all the way to 52.3. It usually triggers volatility in the market, especially when it comes as a surprise.

Tuesday:

The post EUR/USD Forecast March 3-7 appeared first on investazor.com.

By CentralBankNews.info
    Colombia’s central bank held its policy intervention rate steady at 3.25 percent, saying interest rates were appropriate because they are stimulating spending while inflation is converging toward the bank’s 3.0 percent target.
    The Central Bank of Colombia, which has held rates steady since April 2013 after cutting them by 100 basis points in the first three months of last year, said economic growth in 2014 is still projected to expand by 4.3 percent after likely growth of 4.1 percent in 2013 within a range of 3.7-4.3 percent.
    For the fourth quarter, the central bank’s staff is projecting growth of 4.6 percent, up from 4.5 percent forecast by the central bank in January, the bank said after a meeting of its board on Friday.
    Investment is increasing by the largest amount while household consumption is growing at its historical average rate. Exports are also accelerating but at a rate that is lower than imports.
    Colombia’s Gross Domestic Product expanded by 1.10 percent in the third quarter from the second quarter for annual growth of 5.1 percent, the fastest rate in six quarters and up from 3.9 percent in the second quarter.
   Colombia’s inflation rate rose to 2.13 percent in January, within the central bank’s 2.0 to 4.0 percent target range with core inflation at 2.55 percent. Inflation expectations one year from now are around 3.0 percent.
    The central bank added that the rate of credit growth slowed in January but was still higher than the growth of nominal GDP.
    Last month the central bank’s governor, Jose Dario Uribe, said inflation was likely to rise to between 2.5 and 3.0 percent this year after falling to 1.94 percent in 2013, helped by a depreciation in the peso against the U.S. dollar that is raising import prices.

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GOLD: Vulnerable To The Downside

Weekend Update | www.thepracticalinvestor.com

February 28, 2014

— VIX closed below its cluster of weekly Model supports after challenging weekly mid-Cycle resistance at 15.63.  VIX  did not make new lows this week, a non-confirmation of the SPX rally attempts.

SPX is repelled by Cycle Top resistance.

SPX rallied to a new closing high, but reversed short of its weekly Cycle Top resistance at 1877.75.  Orthodox Broadening Tops are often called 5-point reversal patterns.  The SPX currently has 7 points within its Megaphone pattern, a rare anamoly.  The upper trendline of the Bearish Wedge acted as a suport this week in a second throw-over pattern.  I had mentioned that, “A new record high will not negate the effects of a Bearish Wedge or the Broadening Top.  It only postpones it.  Many bearish technicians are now bullish, not recognizing the bearish reversal pattern.”

(ZeroHedge)  With the Ukraine now openly appealing to the world to halt what in its own words is a Russian invasion, it only made sense that after the bigger than expected downward revision to Q4 GDP, and the miss in Pending Home Sales, that the S&P would close at a new all-time high. Oh, there was that surge in the Chicago PMI which confirmed that the February weakness across all other data was not due to the weather, and which is all that the market decided to focus on.

NDX probes at the Broadening Wedge trendline.

NDX probed its Broadening Top trendline for a third week, closing with a gain for the week.  This type of rally is a bull trap, keeping investors reassured that all is well.  A late-day reversal occurred on Friday that portends some follow-through on Monday.

(Bloomberg)  U.S. retailers last quarter suffered their darkest days since the recession.

With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics Inc. Revenue also rose at the lowest rate since that year, the research firm found.

The results paint a grim picture of an industry hit hard by the sluggish job recovery and slow wage growth, which have turned U.S. consumers into a nation of penny pinchers.

The Euro’s head fake stretches another week.

The Euro bounced from weekly Short-term support at 136.58, but did not exceed its prior high.  The inability to make a new high indicates this may be a bearish head fake.

(ZeroHedge)  Here we go:

• UKRAINE ACTING PRESIDENT TURCHYNOV STARTS BRIEFING

• UKRAINE LEADER SAYS RUSSIA STARTS AGGRESSION AGAINST COUNTRY

• UKRAINE SAYS RUSSIA INVADED UKRAINE UNDER GUISE OF EXERCISE

• UKRAINE LEADER SAYS RUSSIA TRYING TO PROVOKE CONFLICT

• UKRAINE LEADER SAYS RUSSIA SEEKING TO ANNEX CRIMEA

• UKRAINE’S TURCHYNOV SAYS WILL DEFEND ITS INDEPENDENCE

• UKRAINE ACTING PRESIDENT ACCUSES RUSSIA OF WORKING ON A SCENARIO LIKE BEFORE WAR WITH GEORGIA

The Yen is consolidating in a narrow range.

The Yen rose above weekly Intermediate-term resistance at 97.48, but staying in a shallow range.  Further decline is anticipated by the Cycles Model. The next break of the Head & Shoulders neckline may bring the Yen beneath its 2008 lows.

(Reuters) – Asian stocks edged up in late trading after a volatile session on Friday, as investors weighed unrest in Ukraine against Federal Reserve Chairwoman Janet Yellen expressing confidence in the strength of the U.S. economy.

The fear factor helped the yen rise against the dollar and euro on its traditional safe-haven appeal as tensions mounted in Ukraine, even after Yellen’s testimony to a Senate committee helped the S&P 500 close at a record high.

U.S. Dollar makes a final Cycle low.

The dollar low on February 18 appeared within the window for a Master Cycle low, but it made a deeper low on Friday, February 28.  This appears to be the final low of this Master Cycle.  A reversal above the trendline reinstates the bullish view on the Dollar.  The dollar shorts may have to deal with the reversal in the coming weeks.

(Reuters) – The dollar fell to a two-month low against the euro on Friday, posting its worst monthly performance since April after data showed steady euro zone inflation and a downward revision to fourth-quarter U.S. economic growth.

The European Union’s statistics office Eurostat estimated that consumer prices in the 18 countries sharing the euro rose 0.8 percent year on year this month, a sign of stability that cooled expectations the European Central Bank might ease monetary policy as early as next week.

Treasuries challenge the declining Trading Channel.

Treasuries bounced from the (red) Broadening Wedge trendline and weekly Intermediate-term support at 131.27, challenging Long-term resistance and the declining Trading Channel at 133.27.  The Cycles Model suggesting a Cycle turn at the end of February inverted, tracing out a high instead of a low.  However, Friday is an important turn date and we may see a surprise collapse in bonds over the next month.

(ZeroHedge)  While it is unclear why it happened, in the most recent week of Fed data, February 19, Primary Dealer holdings of Coupon securities tumbled by $21 billion, to just $2.3 billion. As the chart below show this is curious because the last time PD holdings of coupon securities was this low was in September of 2011, suggesting that in the middle of the month dealers were dumping coupon paper aggressively even though this did not impact the prevailing price of the various maturity buckets, considering the bond complex continues to grind higher in 2014 despite panicked warnings by the punditry that all Treasury holdings must be sold.

Gold continues above Long-term resistance.

Gold stayed above Long-Term resistance at 1306.91 but made little headway after making a 64.8% retracement of the prior decline on Tuesday.  The Cycles Model calls for a month-long decline that may break through the Lip of a Cup with Handle formation.  The potential consequences appear to be severe.

(ZeroHedge)  While the FT promptly retracted an article on precisely the topic of gold manipulation from earlier this week (recorded for posterity here), Bloomberg appears to not have had the same “editorial” concerns and pressures, and today released an article once again slamming the final conspiracy theory that while every other asset class is manipulated, gold is in a pristine class of its own, untouched by close-banging, price fixing traders or central bankers, and reports that “the London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.”

Crude completes a 58% retracement.

Crude made a higher peak on Monday with a total retracement of 58% thus far.  It now may be ready for a swift decline.  There is a Head & Shoulders formation at the base of this rally, which, if pierced, may lead to a much deeper decline.

(Reuters) – U.S. oil on Friday had its eighth straight week of gains on market talk of fewer oil rail shipments from the booming Bakken shale in North Dakota.

Brent oil settled moderately higher but ended the week lower, weighed down by an outlook for dampening demand in China and another for stymied European growth due to uprisings in Ukraine.

Crude oil loadings at a dozen major North Dakota rail terminals fell by more than 200,000 barrels on average in the past two days to 345,000 barrels, data from industry intelligence provider Genscape showed on Friday.

China stocks decline beneath supports.

The unusually large bounce from the January 20 low gave the Shanghai Index a new chart pattern to track.  This week’s decline beneath all Model supports suggests that China stocks are on their way to that goal.  The secular decline may now resume with the next significant low in mid-March.  There is no support beneath its Cycle Bottom at 1946.41.

(Bloomberg)  On any list of banking accidents waiting to happen, China is assured a place at the very top. But could a crash there take the entire global economy down with it?
Absolutely, says Charlene Chu, who until recently was Fitch’s headline-generating analyst in Beijing. Chu has fearlessly trod into an area that China is trying desperately to keep off limits: its vast shadow-banking system. Now that she’s working for a private firm that doesn’t have to rely to governments for revenue, as do rating companies, Chu is free to speak completely openly. And is she ever.
“The banking sector has extended $14 trillion to $15 trillion in the span of five years,” Chu, who is now with Autonomous Research, told the Telegraph. “There’s no way that we are not going to have massive problems in China.” What’s more, she added, China “could trigger global meltdown.”

The India Nifty bounced above resistance levels.

The CNX Nifty continued its retracement through Intermediate-term resistance at 6185.82.  The retracement now appears complete at 72.4%.  The Cycles Model calls for a decline through mid-May. Could there be some economic disappointments ahead?

(OfTwoMindsBlog)  The conventional view of China and India sports not one but two pair of rose-colored glasses: Chindia (even the portmanteau word is chirpy) is the world’s engine of growth, and this rapid economic growth is chipping away at structural political and social problems.

Nice, especially from a distance. But on the ground, China and India (not Chindia–there is no such entity) are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations. The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.

This is simply wrong on multiple levels: as the opportunities for crony/neofeudal skimming increase, so does corruption. As the scale of the economy increases, so does the scale of corruption.

The Banking Index remains beneath its trendline.  

BKX attempted a challenge of weekly Short-term resistance and trading channel trendline at 68.89, closing on it for a third week.  The uptrend line is broken and, more importantly, stands as a resistance to any further rally.  The Cycles Model suggests a new low may be seen in the next two weeks.  Might there be a flash crash?

(ZeroHedge)  Raise your hand if you are surprised that, as has emerged, virtually every major bank was manipulating currencies (and everything else)whether as part of the “Bandits’ Club”, the “Cartel” or some other – until recently- secret message room.

That’s what we thought.

Now raise your hand if you thought the manipulation could be so pervasive, so glaring and so in your face, that even the oldest central bank – the Bank of England – and who knows how many other monetary authorities, were openly encouraging traders from these private banks to do more of the illegal activity they had been engaging in – namely manipulating currencies – with their explicit blessing knowing very well such behavior is undisputedly illegal.

(ZeroHedge)  While the “developed” world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn’t turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that “Ukrainian banks will be provided with necessary liquid assets, including cash.” But there is a condition: the funding will only come “if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website.”

(ZeroHedge)   Well that escalated quickly. It seems the ouster of Yanukovych, heralded by so many in the West as a positive, has done nothing to quell the fear of further economic collapse in Ukraine:

• *UKRAINIANS WITHDREW AS MUCH AS 7% OF DEPOSITS FEB. 18-20: KUBIV

• *DEPOSIT WITHDRAWALS STILL HIGH IN THE EAST, KUBIV SAYS

This is around a 30 billion Hyrvnia loss (over $3 billion) in just 2 days for the banks and the new central bank chief is considering “stabilizing loans” to help banks deal with the liquidity crisis(though Ukraine’s reserves stand at a mere $15 billion).

Reserves are in freefall… and will only get worse if the bank run continues…

(ZeroHedge)  In a desperate attempt to distance itself from the widening corruption scandal linking the Vatican’s bank accounts to fund (and allegedly bribe) a 2007 acquisition by Monte dei Paschi of Antonventa, the Pope has taken an unprecedented step in open the Vatican’s finances to public view.

As Reuters reports, Pope Francis on Monday revolutionized the Vatican’s scandal-plagued finances by appointing an auditor-general stating that the Church must see its possessions and financial assets in the “light of its mission to evangelize, with particular concern for the most needy.

The auditor-general will have wide oversight powers “to conduct audits of any agency of the Holy See and Vatican City State at any time,” a statement said. Francis decreed that the changes have “immediate, full and stable effect,” abrogating any existing rules not compatible with them.

Have a great week!

Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

www.thepracticalinvestor.com

Office: (517) 699.1554

Fax: (517) 699.1558

Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security.  The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model.  At no time shall a reader be justified in inferring that personal investment advice is intended.  Investing carries certain risks of losses and leveraged products and futures may be especially volatile.  Information provided by TPI is expressed in good faith, but is not guaranteed.  A perfect market service does not exist.  Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment.  Please consult your financial advisor to explain all risks before making any investment decision.  It is not possible to invest in any index.

The use of web-linked articles is meant to be informational in nature.  It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski or The Practical Investor, LLC.

EURUSD: Our outlook on EUR remains higher following a sharp rally the past week. As long as it can trade and hold above the 1.3772 level, we look for the pair to strengthen further towards the 1.3850 level where a violation will turn attention to the 1.3900 level and then the 1.4000 level, its psycho level. Its weekly RSI is bullish and pointing higher supporting this view. Conversely, to annul its past week gains it will have to return below the 1.3772 level. Further down, support lies at the 1.3685 level. Further down, support is seen at the 1.3600 level and then the 1.3561 level where a break will turn focus to the 1.3476 level. All in all, EUR remains biased to the upside on further recovery.

Article by www.fxtechstrategy.com

USDCHF: With continued weakness seeing USDCHF testing a low of 0.8776 before closing lower at the 0.8801 level on Friday, further decline remains intact. It requires a break and close below the 0.8798 level, its Dec 27 2013 low and the 0.8776 level, its past week low to decline further. Further down, support lies at the 0.8750 level with a cut through here paving the way for a run at the 0.8700 level, its big psycho level. Below here if seen will set the stage for more weakness towards the 0.8650 level. Its weekly RSI is bearish and pointing lower supporting this view. Conversely, to reduce its downside pressure it will have to return to the 0.8929 level followed by its resistance residing at the 0.9037 level. This if seen could force further upside towards 0.9081 levels followed by the 0.9156 level, its Jan 21 2014 high. Further out, resistance resides at the 0.9200 level, its psycho. All in all, the pair remains biased to the downside in the medium term.

Article by www.fxtechstrategy.com

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The futures market, which also includes the commodities markets, is probably best known for its financial futures. The E-Mini S&P future has become one of the most popular products to trade. The E-mini S&P offers decent volatility with good liquidity and allows traders to enter and exit the market in a timely fashion.

Other futures markets include natural gas, wheat, and corn. These markets, while being major products, are not as liquid and are driven by forces like weather. These markets are also primarily traded by corporates, farmers, and hedgers.

The Forex market is the largest market in the world. Trading at over $5 trillion a day, it eclipses all of the other markets combined. The Forex Trading market is truly a global market as it incorporates multiple currency pairs that are affected by events in different countries. Being a 24 hour market, the Forex market prevents position risk where futures traders and equities traders that hold positions are unable to exit them when those markets are closed.

Without a great deal of capital, a Forex trader can create an account with a Forex broker and develop many types of trading systems with low cost transactions. He or she can experience the flexible trading advantages that major hedge funds and other trading operations use. Global event’s present many opportunities for Forex traders. These events can happen any time and being able to trade 24 hours can help keep you in the game.

Overall, Forex trading has a distinct advantage over futures trading in that futures brokers require a great deal of capital for one to have an account set up.

To learn more please visit www.clmforex.com

Disclaimer: Trading of foreign exchange contracts, contracts for difference, derivatives and other investment products which are leveraged, can carry a high level of risk. These products may not be suitable for all investors. It is possible to lose more than your initial investment. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. A Product Disclosure Statement (PDS) is available from the company website. Please read and consider the PDS before making any decision to trade Core Liquidity Markets’ products. The risks must be understood prior to trading. Core Liquidity Markets refers to Core Liquidity Markets Pty Ltd. Core Liquidity Markets is an Australian company which is registered with ASIC, ACN 164 994 049. Core Liquidity Markets is an authorized representative of Direct FX Trading Pty Ltd (AFSL) Number 305539, which is the authorizing Licensee and Principal.

By CentralBankNews.info
    Zambia’s central bank raised its policy rate by 50 basis points to 10.25 percent, saying the monetary policy committee’s “overall assessment is that risks to inflation are generally on the upside.”
    The Bank of Zambia, which raised rates by 50 basis points in 2013, said the further tightening of its policy should help put inflation on the path toward its 2014 inflation target of 6.5 percent.
   “The upward adjustment in the policy rate, including the recent increase in the statutory reserve ratio to 14.0% from 8.0%, will help address the high liquidity levels in the market and contribute to exchange rate stability,” the central bank said.
    Zambia’s inflation rate rose to 7.6 percent in February from 7.3 percent in January but the central bank said it expects inflationary pressures to moderate to due improvements in the supply of selected food as the harvest season gets underway and the fish ban is lifted.
    Last month the central bank held an emergency meeting with lenders to examine the decline in the Zambian kwacha against the dollar. Like many other currencies, the kwacha came under pressure last year and the pressure has continued this year.
    The kwacha was trading at 5.83 to the U.S. dollar today, down 5.5 percent this year.

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By John Mauldin

For the last two weeks on Thursdays we have brought you special editions of Outside the Box featuring World Money Analyst Managing Editor Kevin Brekke’s interviews with WMA contributing editors. We heard from Ankur Shah on emerging markets and Alexei Medved on Russia, and this week we wrap up the series with a frank, hard-hitting interview with Dirk Steinhoff, who covers the European and Scandinavian markets for WMA.

Kevin and Dirk are both based in Switzerland, and so they lead off with a discussion of the recent Swiss referendum on immigration. Dirk’s interpretation of the vote, which imposes quotas on the number of foreigners allowed to enter the country, is that it has implications for the entire European Union:

[T]he Swiss people basically decided that they want to control immigration themselves and do not want to give up this control to the centralized administration in Brussels. I think that this is a clear signal to the Swiss government that the Swiss people don’t want to give up more sovereignty and that they would like to see more decentralization in the future.

Which leads Kevin and Dirk to take up the broader issues of the unresolved Eurozone debt crisis, unemployment mess, and the fate of the euro. With EU parliamentary elections coming up in May, there is change in the air! OK, let’s turn it over to Kevin and Dirk for the details.

John Mauldin, Editor
Outside the Box[email protected]

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World Money Analyst Update on Europe

World Money Analyst: With me today is Dirk Steinhoff. Dirk is a contributing editor at World Money Analyst and covers the European and Scandinavian markets. Great to have you with us.

Dirk Steinhoff: Thank you very much for having me.

WMA: Seeing that you’re in Zurich and I’m in Fribourg, let’s start with a look at developments in our own backyard. The Swiss are known for their system of direct democracy via use of the referendum. The recent success of a referendum that will restrict immigration into Switzerland made global headlines. What’s your position on the immigration issue and the consequences of this vote?

Dirk: First of all, I should mention that I was born and raised in Berlin and moved with my family to Switzerland in 2007. One of the main reasons why I decided to leave Germany and come to Switzerland, next to the great Swiss landscape, was the strongly centralized development of the European Union, which reminds me painfully of the political system in the former DDR [communist East Germany].

European politicians live a life that is completely detached from those that don’t belong to this elitist political class. Their decisions are based on distorted experience and lobbyist influence and not on real life experience and independent judgment. The strong, centralized power of Brussels, in combination with the desire to regulate everything in life, increasingly limits personal freedom, limits the development of entrepreneurship (and therefore the creation of non-government-related workplaces), and eliminates local, regional, and national characteristics.

The state is much less dominant in Switzerland, mainly due to its federalist and decentralized political system, which limits the power of the federal government. Due to my own background and my own moral conviction, I personally believe that every human being should be able to live and work wherever he or she wants, as long as they are self-reliant, willing to integrate, and do not become a burden to the community they recently entered.

My interpretation of the referendum is that the Swiss people basically decided that they want to control immigration themselves and do not want to give up this control to the centralized administration in Brussels. I think that this is a clear signal to the Swiss government that the Swiss people don’t want to give up more sovereignty and that they would like to see more decentralization in the future.

It also interesting to note that most of the media in Europe (even Swiss media) were shocked by the outcome of the vote. In sharp contrast, other polls in various European countries actually show that most citizens would have voted similarly to the Swiss, and some by an even higher margin than the outcome of the Swiss vote. I think that in the long run more and more of the European people will ask for the Swiss model of democracy to be implemented in their home countries.

Although the rhetoric used by politicians in Europe might change to the negative in the short term, I do not think that the referendum will have a long-term negative effect on the relations between Switzerland and Brussels. I believe that Brussels has to come to terms with our form of democracy and has to respect our sovereignty, even if they might disagree with some of our decisions.

WMA: The immigration debate is not unique to Switzerland, of course, and is a divisive issue across Europe. This seems to be part of a trend where we’ve seen a rise in popularity of nationalist and anti-euro parties? What’s your view?

Dirk: You are right. The severe criticism of Switzerland because of the outcome of the referendum has eclipsed the fact that many European countries face the same issue. People are not only unhappy with the immigration politics within the EU, they are becoming more EU skeptical in general.

The political parties critical of the European Union – like the UK independence party in Great Britain, the Finns Party (formerly the True Finns) in Finland, the Lega Nord in Italy, the FPÖ in Austria, the AfD in Germany, the French Front Nationale, the Golden Dawn in Greece, and the Party of Freedom in the Netherlands – are gaining popularity. Of course, the reasons for and the scope of their EU criticism vary a lot.

I think this trend can be summed up as follows: the people want to have a voice and be able to decide their own fate! Pretty much everybody in the EU is unhappy about one issue or another. The Southern European countries are unable to cope with the austerity measures, and on the other hand you have a large part of the German population that is simply unwilling to continue financing the complete EU.  I believe this trend will gain momentum, and it will bring some surprises in the elections to the European Parliament in May 2014.

Europe has so many different cultures that centralization just doesn’t work, because there isn’t a one-size-fits-all answer to most issues. The euro is a perfect example of this!

WMA: That’s an important point on the euro. With the continued rise of anti-euro sentiment, what is your outlook for the currency? Will the euro survive?

Dirk: I don’t know. There are different scenarios that I can imagine for the euro: strong countries leaving the Eurozone, unwilling to pay for a bottomless pit of EU debt; weak countries leaving the Eurozone in order to be able to devalue their currencies and regain competiveness; or a split into a strong northern euro and a weaker southern euro. Or some combination of these. As you can see, there are many possibilities, and what we will see depends on economic and political developments in European countries over the next several years. In my view, something will happen and we won’t have the same euro in five years time that we have today.

WMA: The adoption of the common currency has limited how individual countries can respond to fiscal stresses. News about the euro debt crisis has been very quiet lately. What is the situation?

Dirk: As you say, there has hardly been any news recently regarding the troubles in the EU, which does not mean that the problems are solved. They are still bubbling under the surface. With the current papering-over and continuation of indebtedness, the need to address the problems, with their inherent negative consequences for most people, has been postponed. Because of that, most of the harsh protest has faded and turned away from the streets and is canalized into the euro-skeptic political parties. And when there have been noteworthy protests, such as last November in French Brittany, media coverage was excluded.

What has changed in the last year? Absolutely nothing fundamentally! So the euro crisis will at some point reappear with all its inevitable consequences.

WMA: You mention France, so let’s continue down that path. The small and mid-sized Eurozone countries – Spain, Portugal, Italy, and Greece – are essentially bankrupt as measured by GDP and in receivership by Brussels. Today, there is growing speculation that France, too, is headed for trouble soon. What do you think?

Dirk: I totally agree! They have too much debt, a radical socialist government, and absurd, business-unfriendly regulation. I have several friends who are business owners in France, and they are all contemplating leaving the country and moving their businesses abroad.  The quantity of regulation they have to comply with simply cannot be handled by a normal business, and the labor laws are so strict that no business owner in their right mind wants to take on the risk of employing someone.

Taking into consideration the unhealthy debt levels they have, the unsustainable social programs they offer, and the complete lack of any growth impulses, I have to believe that the French are indeed headed for trouble soon. And, as the second largest economy in the EU, France matters. If France stumbles, the EU is at risk.

WMA: Drawing on your comments about strict labor laws, the unemployment numbers in many EU countries are mind-boggling. You discussed this situation in your recent article for World Money Analyst. Can you talk about this for a minute?

Dirk: As we have seen since 2008, the trillions in newly created fiat money have mainly fueled asset bubbles. However, the real economy has not profited from it, because this money has not been lent to private industry. We are still facing 30% lower money velocity than before 2008 and that means that more than 30% of credit in circulation has disappeared. This is also why the real economy is still going down the drain.

Most jobs have been created within the government or government-related entities; and as we all know, these jobs are paid for by the taxpayers and are not a source of production. Therefore, I personally believe the situation in the labor market will further deteriorate, especially among the young generation, below 25; they are going to suffer the most. The current youth unemployment rates in Spain and Italy are just shocking: 58% and 42%, respectively. We are losing a whole generation, and we cannot predict how drastically the damage we are doing to them will play out in the future.

WMA: High and sustained rates of joblessness can lead to frustration and anger by the unemployed that turns to civil unrest and protests. We’ve seen riots in several EU countries, including France, Greece, and Bosnia. Is that also a real danger for the stronger European countries?

Dirk: Yes, this is a real danger. As soon as the deterioration of people’s personal economic situations reaches a certain level they will be on the streets, and that includes the streets of the stronger countries. At the moment, most people still believe that all the debt and all the rescue programs come for free.

WMA: What does this all mean for the outlook for European stocks and bonds?

Dirk: That you have to watch closely what the European Central Bank and governments do. It’s a tricky situation – you don’t want to miss any upside rallies in equities and bonds induced by loose monetary policies. Yet, on the other hand you know the party could end at any time. Risk management is essential.  The day of reckoning can be postponed by governments and central banks much further – as we know from the US and Japan – than common sense would allow for.

WMA: In your opinion, what European countries have the best economic outlook?

Dirk: The countries that have been strong in the past, with competitive industries and with sound current-account and budget balances. Countries like Germany, Austria, Denmark, Sweden, and Norway. And Switzerland.

WMA: As you mentioned above, in May 2014 there will be the EU Parliament election. Will that change anything?

Dirk: The potential increase of parliamentarians that are critical of Europe I mentioned before could intensify tensions within the EU and complicate the functioning of the EU system. But I don’t expect a quick change.

WMA: We must talk about the un-loved Swiss franc. Since Switzerland began intervention in the currency markets to halt the rise of the franc against the euro, the mainstream consensus has it that the franc is doomed. But the performance of the franc against other currencies, in particular the US dollar, has been very strong. What’s your take on the Swiss franc going forward?

Dirk: It’s hard to say. In a euro crisis I would expect the Swiss National Bank [the central bank] to remove the floor to the euro. In such a situation the power of the SNB to keep the floor would be simply too small, I think. There are also attempts in Switzerland to once again constitutionally back the Swiss franc by gold. We’ll have to see. The Swiss franc, to me, still belongs to the upper class of paper currencies.

WMA: Do you have any last thoughts for our readers?

Dirk: Globally, we have entered a time when substantial corrections of past misadventures are likely to occur. It’s not the end of the world, but it’s worth being prepared.

WMA: I really appreciate your insights on the European markets. Thank you for taking the time to speak with us today.

Dirk: The pleasure was mine.

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