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Pound falls on Brexit stage fright and BoE Decision

2 min read

The Sterling pound yesterday dropped below 2-week lows in the early London session.

The investors priced-in Brexit uncertainty ahead of a crucial meeting between Theresa May and the European Commission President.

The GBP/USD currency pair dropped to new 2.5-week lows following the Bank of England‘s interest rate decision in the mid-European session.

The GBP/USD currency pair yesterday dropped to a low of 1.2855 following the BoE rate decision before rallying to a high of 1.2997 on Mark Carney‘s balanced comments.

Sterling is trading little changed at around mid 1.2900 before the UK Prime Minister Theresa May reaches Dublin to meet her Irish counterpart and discuss the problematical border plan.

Cable (GBPUSD, often referred to as “The Cable”) tested fresh lows in the mid-1.2800s on Thursday. Although running to recover some ground later and close the day with small gains. It was a small drop in open interest and a decent raise in volume.

There is a potential continuation of the bounce, which will leave at the same time occasional dips shallow.

At the time of writing, the Pound was down 0.02% at $1.2932.

image Pound falls source Yahoo Finance

The 4 hours chart shows that the pair quickly recovered above its 200 EMA, although it has already tested levels below it. A bearish 20 SMA keeps capping the upside, while technical indicators have recovered from oversold levels, now losing upward strength within negative levels, indicating that the risk of an upward extension remains limited. The pair would need to surpass the 1.3040 resistance to be able to extend its gains toward the 1.3100 price zone, yet as long as Brexit uncertainty prevails, the most likely scenario is sellers taking their chances on spikes above 1.3000.

Support levels: 1.2925 1.2880 1.2835
Resistance levels: 1.2995 1.3040 1.3090

What about shares?

UK shares were having a good day on Tuesday, with the FTSE 100 has gone from strength to strength as the morning has progressed.

Shortly before midday, the UK’s benchmark share index was up 106.95 points, or 1.5%, at 7,141.08.

The index was given a lift early on by BP’s better-than-expected results, which have pushed the oil giant’s shares up more than 5%.

Shares were also boosted after the pound fell back in the wake of the disappointing survey of the UK services sector.
Currently, rate is $1 = £0.7728.

Shares often rise when sterling falls. The weaker currency lifts the value of companies’ overseas earnings when they are brought back to the UK and converted back into pounds.

Governor Carney’s said on Thursday, that further rate hikes should not be priced out of the Pound.

Focus returns to Brexit and whether Theresa May can find more support for concessions to deliver a deal pleasant to Parliament.

All options are still on the table

With the UK government still working its way to the UK parliament with the Brexit agreement approval, the Brexit uncertainty is set for the next weeks. The 2019 GBP/USD forecast highly depend on the result of the Brexit deal going forward. All options are still on the table leaving different GBP/USD scenarios all applicable.

Sterling could fall past 1.2000 level that historically frames the bottom and serves as a territory of rebound for GBP/USD in case of hard Brexit. The reasonable solution for all interested parties in the UK parliament, the UK government and in the EU should be to avoid the scenario of no-deal Brexit. That would throw the UK economy and Sterling into confusion with the Bank of England saying the bottom for Sterling would be some 25% lower.

Also, no transition Brexit would realize an unfavorable scenario for Sterling with falling to the lowest level since 1985 of 1.0700. Such scenarios are still considered doubtful. Should such scenarios develop, it is almost a sure shot for traders while buying GBP/USD at historical or/and cyclical lows.

The chance of the UK finally making some kind of Brexit deal with the European Union is still the mainstream scenario for the UK and for GBP/USD.

A no-deal Brexit is still not the most probable scenario for the UK economy going into 2019. The UK parliament stands in deep opposition to the Brexit deal agreed by the government.

The ruling Conservative party is divided profoundly.

risk disclosure

8th February 2019
CRISIS – Analysts Have BLACK FORECAST FOR 2019

Analysts have black predictions for the coming year. The crisis is knocking the door.

By Traders-Paradise Team

We will face the worst crisis, which is the analysts’ prediction. Here is the selection of their statements.

“The European Union is about to implode this year.” investor Mitch Feierstein has predicted in a New Year episode of the Keiser Report. He also unveils which country will become the next Greece. The answer is surprising.

This year will be hard for Europe not only due to Brexit. The other member states could also bring the bloc down, according to Feierstein. “Nationwide protests in France are only the first sign of looming wider unrest,” the analyst stated to Russia Today.

“You are gonna see global unrest. I think you’ll it as a feature in Italy when the EU tries to bully them,” the British-American investor noted, citing infective “draconian austerity measures.”

But, not only Italy but also France could follow the fate of debt-ridden Greece, Feierstein warned. He noted the low approval rating of President Emmanuel Macron, rising unemployment, and huge wealth inequality in the country.

“Italy has got four trillion in loans they said there are not going repay… France has got a similar situation but they’ve got civil unrest with the population burning down Paris. So one of them will leave,” he predicted.

Both countries have been breaking EU budget rules.

After just one year of compliance in 2018, Paris announced that its budget deficit for 2019 is set to be 0.2 percent higher than the three percent threshold that the bloc’s rules allow. Brussels agreed to tolerate the breach. The same as it had been doing so for almost a decade before Macron’s presidency.

Italy has also been at loggerheads with the 28-nation union. Last year, the EU Commission wanted to put Italy in an economic disciplinary program over a serious breach of EU regulations on debt. The standoff between Rome and Brussels was settled only in mid-December when Italy agreed to a budget deal despite domestic criticism from the opposition.

But Mitch Feierstein is not alone.

The economist Nouriel Roubini, also known as Dr. Doom also warns that we are in the midst of a new asset bubble that could end in a crash bigger than that in 2008.

He made a list of 10 reasons why the world is at the threshold of a new crisis. Almost each of them begins and ends with a single name – Donald Trampa. But also insults on his account.

As the first reason for the new crisis, Nouriel recognizes the fiscal-stimulus policies that are currently pushing the annual US growth rate above its 2% potential are unsustainable. His opinion is that by 2020, the stimulus will run out, and a modest fiscal drag will pull growth from 3% to slightly below 2%.

Second, the US economy is now overheating, and inflation is rising above target. The US Federal Reserve will thus continue to raise the federal funds rate from its current 2% to at least 3.5% by 2020. That will likely push up short- and long-term interest rates as well as the US dollar.

“The inflation is also increasing in other key economies, and rising oil prices are contributing to additional inflationary pressures. That means the other major central banks will follow the Fed toward monetary-policy normalization, which will reduce global liquidity and put upward pressure on interest rates.” – wrote Nouriel for The Guardian in September last year.

In his explanation he wrote further:“… once a correction occurs, the risk of illiquidity and fire sales/undershooting will become more severe. There are reduced market-making and warehousing activities by broker-dealers. Excessive high-frequency/algorithmic trading will raise the likelihood of “flash crashes.” And fixed-income instruments have become more concentrated in open-ended exchange-traded and dedicated credit funds.”

A new recession wave is coming

Joze Mencinger, Slovenian lawyer, economist, and politician, believes that the world is waiting for a new wave of economic instability. He is also called the architect of the Slovenian transition.

“Lately most of the crisis has been due to a lack of demand, because, mankind has no problem on the supply side, we have a problem on the demand side. We can simply say that the production of a car is cheaper than its sale,” Mencinger believes.

If there is just one question in this test: is the world awaiting a new crisis? It is frightening, but these economists would complete a positive answer.

There are many indications that growth will slow down. And this is in a way accepted today by IMF and World Bank officials in projections for next years.

Contrary to these catastrophic forecasts, we have to notice. In order to make a recession, employment usually falls, and growth becomes negative, industrial production falls. All of these indicators are still strong and do not indicate that we are entering a recession. Of course, there are some events that can lead to it and this should be followed.

The American stock market killed by a strong word

December events on the US stock market are, of course, something to be watched.

It all began before the Catholic Christmas when American brokers had the worst Christmas Day ever. The stock indices seemed to have been riding on the roller-cruiser because they returned to the highest level since 2009 the next day. Blumberg described this situation as bizarre.

The financial sector overlooks the real sector. Because in the real sector there are no such swings.

And it looks that the term ”bizarre” is just fine.

It seems that in December last year the US stock market killed a too strong word. The market did not come as a result of the fact that the US Federal Reserve Administration raised interest rates. From the tightening of the monetary policy, the much worse exchange was a “verbal delict”.

The market is always sensitive to what the officials of powerful states declare.

And perhaps officials today are not completely aware of this, but their word affects the markets. This is not a new phenomenon. This is well known and therefore traditionally central bankers give very careful statements. The fact is that their word is analyzed and evaluated by the investment public. It can affect the movement of prices in the financial market.

The bubble pops off in one place, but the crisis arrives everywhere

Big crises are like blowing balloons. The bubble that began to swell at the end of December soon vanished.

And it’s just when the indexes have come close to nearly 20 percent. This is considered a border, after which what investors call “bear market”. This means that the stock market is on a descending path and that the bad days are coming. Fortunately, this time it did not happen.

But, unlike in 2008, the governments had the policy tools needed to prevent a free fall.

”The policymakers who must confront the next downturn will have their hands tied while overall debt levels are higher than during the previous crisis. When it comes, the next crisis and recession could be even more severe and prolonged than the last”, pointed Nouriel Roubini.

The truth is one if we enter the new crisis. People around the world will pay these costs, and this will guarantee profits primarily to the super-rich. After all, they own property. Whether it is a state tax, an increase in the purchase price of goods and services, or any fees for services.

With the cut of costs, the rest of the welfare state will make this enormous debt will pay billions of the people by their work and their mostly poor income.

30th January 2019
Mass exodus if May allows no-deal Brexit?

3 min read

More and more of British companies have already triggered emergency plans to manage with a no-deal Brexit. If the UK crashes out of the EU. Many of them will move operations abroad, claim the British Chambers of Commerce.

It said that in recent days alone, it had been told that 35 firms had activated plans to move operations out of the UK, or were stockpiling goods to combat the worst effects of Brexit.

It looks that many companies had acted to protect themselves since May’s Brexit deal was decisively rejected by MPs in the Commons earlier this month.

The worst effects of a no-deal Brexit

Actually, it has seen a sharp increase in companies taking actions to try and protect themselves from the worst effects of a no-deal Brexit. No deal has gone from being one of several possible scenarios to a firm date in the diary.

Last week the Airbus, Europe’s largest aerospace manufacturer, which employs 14,000 people in the UK and supports another 110,000 through supply chains, warned of potentially disastrous effects of no deal on its UK activities.

Tom Enders, the boss of Airbus, said: “Please don’t listen to the Brexiters’ madness, which asserts that because we have huge plants here we will not move and we will always be here. They are wrong.”

UK exporters need access to the EU’s customs union

Ever since the vote to leave the EU in 2016, business groups including the BCC and the Confederation of British Industry have lobbied ministers, arguing that UK exporters need access to the EU’s customs union. Because it allows goods to be imported tariff-free.

The CEO of Airbus, the global leader in aviation, clearly warned that Brexit threatens to destroy the developmental life in the UK. He urged the British to “not listen to the madness of Brexit’s supporters,” who argue that Airbus will remain forever in the UK because there are huge factories in that country.

Airbus has more than 14,000 employees in the UK. Another 110,000 people work in related activities.

Britain should leave the EU on March 29th.

The Dutch authorities have announced that they are in contact with more than 250 foreign companies planning to move to the Netherlands due to the UK leaving the European Union.

“It is not so easy to move huge factories to other parts of the world, but the Airplane Industry is a long-term business. We will redirect investments quickly in case there is no agreement on Brexit with the European Union. Do not be misled, because a lot of countries are barely waiting to be opened factories of Airbus parts there”, said CEO of Airbus Tom Enders.

But the prime minister May has insisted that the UK must leave both the customs union and EU single market. And that the referendum result of 2016 is to be fully respected.

YOU WOULD LIKE TO READ Brexit deal, is it to be or not to be?

Political debates about no-deal Brexit

Labour MP Yvette Cooper has revealed to the Observer that two major employers in her West Yorkshire constituency had written to her. They are warning of the damaging effects of no deal on their UK operations. Burberry, the luxury goods manufacturer, employs 750 people in Castleford and Haribo, the confectioner, 700 across her constituency.

Cooper is pushing for a Commons amendment that would pave the way for Brexit to be delayed until the end of this year. It looks that MPs may need to work longer and lose their February half-term break if Brexit is to be delivered on time.

The extra hours will be needed to get its legislation onto the statute book before the planned 29 March exit.

Theresa May will seek backing for her deal in another Commons vote on Tuesday.

Commons leader Andrea Leadsom described bids by MPs to prevent a no deal as a “thinly veiled attempt to stop Brexit”.

Writing in the Sunday Times, she said this would be an act of “constitutional self-harm”.

The UK is due to leave the EU at 23:00 GMT on 29 March and the prime minister has faced repeated calls to rule out the prospect of leaving without a deal if no agreement can be reached.

There is a grave concern about a bill, proposed by Labour MP Yvette Cooper. It could extend Article 50 – which triggers the UK’s withdrawal from the EU by nine months. That means the prime minister has to secure a deal by the end of February.

The Queen does not show any political views but…

The British Queen has called on citizens to find “common language” and respect “different points of view”.

Commentators say the remarks are considered the debate about the Brexit, while deputies will have to vote again next week on an agreement to leave the European Union.

BBC journalist who follows the royal family, Nicholas Bichel, believes that there is no doubt that the queen “sends a message”.
The Queen, as head of state, remains neutral in political matters and usually does not express her views on the controversial issues.

However, speaking at the event marking the 100th anniversary of the Sandringham Women’s Institute in Norfolk, the queen said: “The continued emphasis on patience, friendship, a strong community-focus and considering the needs of others are as important today as they were when the group was founded all those years ago.

Of course, every generation faces fresh challenges and opportunities. As we look for new answers in the modern age, I for one prefer the tried and tested recipes, like speaking well of each other and respecting different points of view; coming together to seek out the common ground, and never losing sight of the bigger picture. To me, these approaches are timeless, and I commend them to everyone.”

The queen’s call touched the same questions as her Christmas message, in which she invited people to treat others with respect, “even when there are deepest differences.”

The Brexit rises tensions on the once-bloodiest border in Europe

Thousands of people travel every day for over an hour and a half across the Irish Sea to the United Kingdom. This is not only an important commercial line but an important cultural connection for many in Northern Ireland, which now directly depends on the parliamentary majority Theresa May.

The city Larne shows its loyalty to London. The roads through the nearby villages are painted in the colors of the crown. Local Unionists the Irish, angry opponents of Catholic Irish, have their MP, Sammy Wilson.

“We have strong historical ties with the rest of the United Kingdom for hundreds of years. It’s a common faith, a common language, and we will not give up on that,” he said.

Unionists, who support the government Theresa May, refuse to support her proposal for Brexit if their relationship with the rest of Britain become more difficult. And the prime minister has not given them a satisfactory proposal so far.

The main concern of the Unionists is whether the peace agreement for Northern Ireland which has ended decades of bloodshed will be respected.

May is facing the problem that Wilson is not ready for a compromise.

Their interests would be satisfied if they would leave the EU without an agreement. Then, they could say that this item has been removed from the agenda.

Wilson argues that the Union’s insistence on the status of the border is a violation of the terms of the peace agreement.

“This would mean that our laws are written in Brussels, not London. In other words, we would be constitutionally separate from the rest of the United Kingdom, which is a breach of the Belfast agreement,” said Wilson.

The MPs also proposed a number of amendments with alternative proposals, which include postponing the deadline for abandoning the EU on March 29, in order to avoid issuance prior to reaching an agreement.

Many MPs fear that leaving the EU without a formal withdrawal agreement would cause chaos in ports and business disturbances, although some supporters of Brexit support this option, and believe that this view is excessive.

YOU WOULD LIKE TO READ The Brexit deal that risks “letting the British people down”

Another amendment concerns the escape and ensuring that the border between Northern Ireland and the Republic of Ireland will not be returned.

Both the UK and the EU believe that restitution of border controls could jeopardize the peace process, but Brexit’s advocates are afraid that the safeguard mechanism could connect Britain with EU rules for an indefinite period without any declaration of them.

Risk Disclosure (read carefully!)

27th January 2019
EUR/USD declined this week

1 min read

The US dollar was one of the strongest currencies during the trading week, mostly due to the optimism about Sino-US trade negotiations. EUR/USD declined even as the US consumer sentiment worsened significantly this month.
But previously, 3 days ago, EUR/USD declined dramatically.

EUR/USD declined as the US consumer sentiment worsened significantly this month. Yet the improving industrial production helped the dollar to gain on the euro. Another reason for the dollar’s strength was the rumor that the United States is considering lifting tariffs on Chinese imports.

Check the foreign exchange market. These are the data for some of the most interesting currency pairs:

AUD/USD

The Trend is bullish in the 1-hour chart. Intraday support is present at 0.7017 price level. So, as long as the price stays above 0.7017 support level, look for buy trades. If bearish candlestick closes below 0.7017 critical support level, then up trend is going to end.

EUR/JPY

The Trend is bullish in the 1-hour chart. Intraday support is present at 123.37 price level. So, as long as the price stays above 123.37 support level, look for buy trades. If bearish candlestick closes below 123.37 critical support level, then up trend is going to end.

EUR/USD

The Trend is bearish in the 1-hour chart. Intraday resistance is present at 1.1484 price level. So, as long as the price stays below 1.1484 resistance level, look for sell trades. If bullish candlestick closes above 1.1484 critical resistance level, then down trend is going to end.

GBP/USD

The Trend is bearish in the 1-hour chart. Intraday resistance is present at 1.2965 price level. So, as long as the price stays below 1.2965 resistance level, look for sell trades. If bullish candlestick closes above 1.2965 critical resistance level, then down trend is going to end.

USD/JPY

The Trend is bullish in the 1-hour chart. Intraday support is present at 107.77 price level. So, as long as the price stays above 107.77 support level, look for buy trades. If bearish candlestick closes below 107.77 critical support level, then up trend is going to end.
Images source: www.earnforex.com

22nd January 2019
Brexit deal, is it to be or not to be?

4 min read

Theresa May, the British PM, looks for a compromise with her political opponents that will deliver a Brexit deal. She is entering the most delicate and dangerous negotiations of the country’s split from the European Union.

On Wednesday night, there was an attempt in Parliament of opposition to oust her government in a vote of no-confidence 24 hours after her agreement with the EU was emphatically rejected by the historical margin for any sitting government of 230 votes.

But May survived and opened talks in an effort to break the deadlock. Now she must return to Parliament to set out her Plan B by Monday.

Point is that the UK has just 10 weeks left before the departure deadline.

According to Bloomberg, “May is prepared to blur her red lines to find a plan that will get through Parliament, according to a person familiar with the matter. That could mean keeping close ties to the EU, an outcome backed by opposition parties.”

On the other side, the European Union demand she radically rethinks the UK’s red lines. The bloc signaled its willingness to delay Britain’s withdrawal for a longer time.

That means, the EU had been preparing to make limited concessions over the much-loathed Irish border backstop to help May convince Parliament to back her deal.

But the after Tuesday night it is changed: European governments now believe a more fundamental shift is needed and the move has to come from the UK side, three diplomats said.

“The government approaches these meetings in a constructive spirit and I urge others to do the same,” May told the House of Commons after winning the confidence vote. “But we must find solutions that are non-negotiable and command sufficient support in this House.”

Economic consequences of Brexit deal

The pound initially rose after the historic vote on the Brexit deal. There were some expectations a cross-party approach would yield a Brexit plan that protects the trading connection with the bloc.

But the Theresa May discovered that the price of her opponents’ cooperation could be too high.

Rival party leaders promptly began to establish their conditions for taking part in talks to rescue May’s Brexit strategy. On the table is the option of delaying Brexit and even staging a second referendum on the membership of the EU.

The leader of the main opposition Labour party, Jeremy Corbyn refused to take part at all in talks about the government’s new Brexit plan.

Corbyn, the Labour leader, said May must rule out a no-deal Brexit as a precondition for discussions. After a spokesman for the prime minister later told reporters she was not doing so, Corbyn’s camp said no deal was “blackmail.”

A “no-deal” Brexit is where the UK would cut all ties with the European Union overnight.

Labour party, Scottish National Party, and Liberal Democrat members of Parliament favor closer trading ties with the EU. More than May has proposed. Labour party, for example, is advocating full, permanent membership of a customs union with the bloc.
That sound as anathema to many pro-Brexit members of May’s Conservative party.

British authorities warn that leaving the EU without a deal could lead to a recession, with the pound falling as much as 25 percent and house prices taking as much as a 30 percent hit. Already, suppliers to manufacturers are stockpiling just in case.

Time is running short, and the prime minister has urgently scheduled calls with EU leaders to discuss the next steps.

It’s unclear how much the EU can help.

The bloc is willing to extend the Article 50 negotiating period beyond the summer. In order to find a deal if necessary, according to some diplomats. But on Wednesday, the EU’s chief Brexit negotiator, Michel Barnier said there’s no way to remove the need for the most contentious part of the agreement, the so-called backstop plan for the Irish border.

According to some diplomats, European governments are willing to delay Britain’s departure well into the second half of the year.

So, there is a chance for Brexit to not happen on the long-ago scheduled date of March 29.

The economic exodus because of Brexit deal

The increasing likelihood of a no-deal split is pushing wealthy Europeans, who have made their homes in the UK, to move out. According to Anthony Ward Thomas, founder of a firm of the same name that specializes in overseas relocation.

He confirmed 296 moves away from Britain in 2018. That is an increase of 82 percent. Favored destinations are Paris, Brussels, Zurich, and Geneva, as well as southern France and Spanish locations such as Majorca. In other words the territories of EU countries.

Popular destinations also include the Channel Islands, which don’t apply capital gains or inheritance taxes. Relocation inquiries increased more than 50 percent in the second half last year compared to the first six months.

Customers are typically wealthy, having at least 5 million pounds ($6.4 million) at their disposal. They are European Union citizens moving with their families. There are some retirees seeking warmer weather but also favoring “more stable” political climate.

It pretty much looks that the people are abandoning the ship because it is sinking.

And the exodus may accelerate after the rejection of Theresa May’s Brexit deal.

You would like to read: What makes the Swedish economy unique and should the world follow its economic model?

Italy has also emerged as a magnet for moves, spurred by Brexit and the introduction of a new tax regime two years ago. This country was previously a focus mainly of the second-home owners. But these days, a new home buyer in Italy is, for example, entrepreneur or hedge-fund manager. They moved their families, bought homes, and started to work remotely.

Financial consequences

The pound drifted on Wednesday and gilts sold off even though the margin of the Prime Minister’s loss was way above the threshold many analysts feared would trigger panic. The prospect of a no-confidence vote in May later that evening has also failed to disrupt assets amid a general assumption she will prevail.

The one soft spot was the FTSE 100 Index of shares, which tends to fall when the currency performs well.

The key to the robust showing from UK assets appears to be in the scale of May’s defeat. A belief is growing among many financial professionals that there’s an increasing chance of a so-called soft-Brexit or even no Brexit at all. Those are outcomes many investors would cheer.

It looks that the chances of a no-deal Brexit are so slim now it’s not even really worth considering anymore. It looks that the resolution will be an even softer version than May’s proposal or a new referendum.

You would like to read Investment prediction for 2019 – Traders Paradise prediction

That’s a view shared by a host of analysts who expected May to survive the no-confidence vote called by the opposition.

The markets offer evidence of a pickup in confidence among traders. The cost of insuring UK banks’ subordinated debt fell, while volatility on pound options has slumped.

So, we can say that Prime Minister Theresa May’s record defeat in Parliament over her Brexit divorce deal caused a curious response from markets: Optimism.

The pound drifted on Wednesday and gilts, which is a traditionally safe investment, sold off even though the margin fell way below the threshold. And many analysts feared it would trigger panic. The prospect of a no-confidence vote in May later that evening has also failed to disrupt asset prices amid a general assumption she will prevail.

Not everyone sees the glass as half full

One undeniable outcome of the defeat of May’s deal is a further delay to the Brexit process and yet more uncertainty for traders. Dean Turner of UBS Global Wealth Management is among those recommending caution.

Fidelity International Leigh Himsworth is also wary. He’s reminding investors that a no-deal Brexit remains the default option. And that the mechanics of any other possibilities are difficult. He recommends investing in liquid assets and hedging against the various outcomes.

Brussels’ chief negotiator, Michel Barnier stated Brexit is at a standstill after the crushing rejection of Theresa May’s deal by MPs but offered to return to the negotiating table if parliament forces her to shift the “red lines”.

So, we will see. Monday is coming very soon.

Risk Disclosure (read carefully!)

17th January 2019
Swedish Economy – HOW SWEDEN CREATED A MODEL ECONOMY

3 min read

photo source Jonathan-Brunkhorst unsplash
Nearly half of millennials say they prefer socialism to capitalism, but what do they mean?

“My policies most closely resemble what we see in the U.K., in Norway, in Finland, in Sweden,” Rep. Alexandria Ocasio-Cortez told “60 Minutes.”

Yet Sweden’s experiment with socialist policies was disastrous, and its economic success in recent decades as a result of market-based reforms.

The Swedish economy continues to outperform other advanced economies.

Sweden is an amazing country. It is the country where Ikea, Skype, Spotify, Ericsson, Mojang (of the Minecraft fame) were founded and the country of the world’s oldest Central bank Sveriges Riksbank.

In the past, the Nordic nation has been criticized over state intervention. But now it tends to be presented as an example of how to optimize market capitalism.

What’s the secret?

Stability through reform

Sweden’s gross domestic product (GDP) per capita is among the highest in the EU. It has low inflation and a healthy banking system. But this has not always been the case. Historically, the Swedish economy suffered from low growth and high inflation, and the Swedish krona was repeatedly devalued.

Also, Sweden was hit by a violent financial crisis in the early 1990s. Banks became unstable. Two were nationalized, unemployment rose sharply, government spending soared, as did national debt.

photo source chuttersnap

The path back to stability and success was not easy for Sweden. But by pursuing inventive and courageous reforms, and sticking to them, Sweden has transformed its economy. They manage to pave the way for robust growth in the face of global economic uncertainty.

The balanced budget

According to the International Monetary Fund, Sweden’s national debt to GDP ratio fell from 80% in 1995 to 41% in 2017. All three leading credit agencies give Sweden an ‘AAA’ rating. That is a rare distinction, even among developed economies.

Since the crisis of the 1990s, successive Swedish governments have succeeded in maintaining control over public spending and continued to do so even in the wake of the 2007–2008 global financial crisis.

How was this achieved?

Sweden reinvented its economic governance with a series of innovative regulations. First, in 1996, a limit for public spending was introduced. This was followed by the addition of the ‘surplus goal’ for the government budget. These measures remain largely intact.

These reforms were met with broad support from across the political spectrum in Sweden, where political consensus is often the norm. These measures help prevent the accumulation of debt, and ensure that the national debt is kept in check.

The Swedish Fiscal Policy Council (Finanspolitiska rådet) was established in 2007. This committee of experts audits the government’s policy decisions regarding public finances. It aims to ensure that they remain consistent with the goals of growth, employment, and long-term financial sustainability.

The Swedish government’s credible management of public finances has meant that Sweden remains among the most fiscally responsible countries in Europe.

While governments with large budget deficits carry out austerity measures by increasing taxes and cutting public spending, Sweden has broadly avoided these difficulties. While Sweden remains a relatively highly taxed economy, the center-right coalition government of 2006–2014 scrapped inheritance tax in 2005 and a wealth tax in 2007.

The dynamic Swedish economy

Today, Sweden has a diverse and highly competitive and successful economy. The World Economic Forum ranks Sweden among the top ten most competitive countries in the world.

Sweden is also one of the easiest countries in the world to do business with, according to the World Bank.

A key feature of the Swedish economy is its openness and liberal approach to trade and doing business. Sweden has traditionally been an export-orientated nation, and typically maintains a trade surplus. The value of goods and services it exports is greater than the value of imports.

In addition to maintaining competitiveness in goods and manufacturing, growth in contemporary service sectors such as information and communications technology (ICT) has been strong in Sweden.

Sweden has produced a number of unicorns, including video game developers King and Mojang, fintech company Klarna, and music streaming service Spotify, and video call platform Skype.

Photo by John Arano on Unsplash

Sweden’s present economic and social prosperity was built on the lessons learned from the financial crisis in the early 1990s.

Governments pursued reforms and fiscal sustainability became institutionalized. Stable economic policies combine with competitiveness, innovation and an open approach to trade to make Sweden a model for economic success.

Cashless economy

Sweden is the most cashless society in the world with less than 1% of the value of all payments made using coins or notes in 2017.

Across the country, cash is now present in less than 20% of transactions in stores – half the number five years ago, according to the Riksbank.

Stockholm metro does not accept cash neither does most public transport. Most retailers only accept card payments and street vendors accept cards too. Even smaller payments are cashless with widespread card acceptance. iZettle – one of the most popular small retail payment processors is actually a homegrown company from Sweden.

Retailers are legally entitled to refuse coins and notes.

About 65% of Sweden’s 1500 odd bank branches no longer handle cash. Further many no longer even have ATMs.
Riksbank figures reveal that the average value of Swedish krona in circulation fell from around 106 billion in 2009 to 65 billion in 2016.

Let’s go back to the beginning of this article.

Ocasio-Cortez, like Senator Bernie Sanders before her, knows not to claim an actual socialist country as an exemplary.

During the primary season of the election of 2016, Sanders said, “I’m not looking at Venezuela. I’m not looking at Cuba. I’m looking at countries like Denmark and Sweden.”

Their opponents have the argument against. According to the latest edition of Economic Freedom in the World, Norway is the 25. a country in the world and Sweden 43. out of 162; while Singapore and Hong Kong first and second.

But, neither AOC or Sanders wanted to say that Nordic countries, even Sweden is the example of a free economy.

This was just a short picture of the Swedish economy.

The bottom line

Sweden and the Swedish economy is an example of how the government has to work for the benefits of citizens.

Sweden maybe is ranked lower than some other prosperous countries. But it isn’t the point. The point is: do citizens have opportunities, does government protects their rights and how they really treat them in regard to the living standards.

Risk Disclosure (read carefully!)

15th January 2019
Alexandria Ocasio-Cortez – is she right?

2 min read

Alexandria Ocasio-Cortez, who just took her House seat to represent the Bronx, has sparked headlines by suggesting tax rates as high as 70 percent to finance a “Green New Deal.”

Alexandria Ocasio-Cortez, said in an interview with Anderson Cooper on Sunday’s 60 Minutes, “There’s an element where, yeah, people are going to have to start paying their fair share in taxes,” she said. “Once you get to the tippy-tops, on your 10-millionth dollar, sometimes you see tax rates as high as 60% or 70%. That doesn’t mean all $10 million are taxed at an extremely high rate. But it means that as you climb up this ladder, you should be contributing more.”

On Friday morning, Politico reported that “exasperated” Democratic leaders on the Hill were striving to control Alexandria Ocasio-Cortez, U.S. Congresswoman and Bronx-native.

Alexandria Ocasio-Cortez proposed higher tax rate

She proposed a higher tax on the super-wealthy as part of a plan to finance the Green New Deal program.

AOC is proposing to lift the top marginal tax rate to 70 percent on incomes starting at $10 million. This idea has drawn both praise and mockery from the whole the political spectrum.

The opponents’ argument is that high taxes can make people work less. For example, if a well-to-do person takes home only $5,000 per hour instead of $7,000, he might cut back on the number of hours he works. But in real life, the effect is minimal.

Truth is that higher taxes are unlikely to reduce incentives, as the incentives to work are governed by the marginal utility of lost or gained income. Simply put when the wage of someone earning $22.000 per year can go up or down by $1.000 that person is well incentivized to make a decision about cutting back work hours. But when a person earning $10 mill a year, $1.000 of lost or gained income makes no change of the standard of living.

In support of this thesis, the Nobel Prize-winning Paul Krugman speaks.

Paul Krugman, in full Paul Robin Krugman, (born February 28, 1953, Albany, New York, U.S.), American economist and journalist who received the 2008 Nobel Prize for Economics for his work in economic geography and in identifying international trade patterns.

A few days ago he asked one simple question in his column for the New York Times:

“What does Alexandria Ocasio-Cortez know about tax policy?’‘

And he gave the answer:

”A lot.”

Detractors try to discredit this young woman by publishing allegedly, compromising photos and videos. AOC was dancing in college. What?

That’s the right’s hysterics! Also, some of them try to show that her policy is insane.

Paul Krugman wrote:

”The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance. (Although Republicans blocked him from an appointment to the Federal Reserve Board with claims that he was unqualified. Really.) And it’s a policy nobody has ever implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history.”

And Krugman added:

“A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction since they will still be able to buy whatever they want.”

and

“In other words, tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the population.”

Alexandria Ocasio-Cortez belongs to millennials generation

Almost half of the millennials say they prefer socialism to capitalism. What do they mean?

“My policies most closely resemble what we see in the UK, in Norway, in Finland, in Sweden,” Alexandria Ocasio-Cortez told “60 Minutes.”

On the other side, critics of high taxes claim the policy stifles economic growth by reducing the incentive for people to work. But Sweden’s employment rate is 77.5%, beating the U.S.’s 71%. In terms of economic growth this decade, expanding 2.7% a year in Nordic countries, on average, compared with 2.2% for the U.S.

For a real-world example, critics and fans alike should look to Sweden. This Nordic country has a marginal tax rate of 69.7% on salaries above $79,000. That’s almost 30 percents higher than in the U.S.

It is fantastic how many people don’t understand progressive taxation and marginal rates.

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Most interesting, it shows how few people understand that without progressive tax, you don’t get the infrastructure which allows people and businesses to prosper.

On the other side, some do.

Soak the rich. They should be happy we are not moving for a wealth tax.
Indeed. High marginal tax rates or guillotines. Seems like an easy choice for me.

So, we can say that Ocasio-Cortez’s tax plan isn’t radical at all.

And it certainly won’t damage the economy in any significant way. But will the plan to yield a bounty of tax revenue for a Green New Deal or other major spending programs?

This question is more about maximizing revenues than about the marginal rates.

Krugman pointed:

“Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.”

Wealthy people have eye-popping incomes. But there really aren’t that many of them.

The amount of money the tax would raise would yield roughly $72 billion a year. That would increase federal personal income tax revenue by about 3.9%. It would certainly not be nearly enough to pay for Ocasio-Cortez’s Green New Deal.

Chart: The Balance Source: The Office of Management and Budget

But the point is, why wealthy people don’t like to share or, more important, to invest in their country’s progress.

Survey shows

According to a Pew Research Center survey conducted Aug. 15-21 among 1,893 adults, more Americans say tax rates on corporations and higher-income households should be raised rather than lowered.

The result is: 24% say taxes on incomes over $250,000 should be reduced; 43% say they should be raised, while 29% favor keeping them the same as they are currently.

According to the same survey, majorities of Democrats and Democrat-leaning independents favor raising tax rates on both corporations (69%) and high incomes (57%), while Republicans are more divided.

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But while 70% of liberal Democrats say tax rates on household incomes over $250,000 should be raised, fewer than half of conservative and moderate Democrats (46%) say the same.

The bottom line

Historically, America used to have very high tax rates on the rich, even higher than AOC is proposing. The highest growth rate period was when the top marginal tax rate was 90%. That was the golden era of the post-WWII U.S. economy.

Let’s conclude this article with Krugman’s quote:

“Well, on the tax issue she’s just saying what good economists say; and she definitely knows more economics than almost everyone in the G.O.P. caucus, not least because she doesn’t ‘know’ things that aren’t true.”

Risk Disclosure (read carefully!)

13th January 2019
A chaotic December in equity markets

2 min read

Image from shutterstock.com

What caused a chaotic December? A chaotic December in equity markets is closing. But, at the end of the year, these were not usual circumstances.

It’s “completely bizarre,” says Stephen Innes, head of trading for the Asia Pacific at Oanda Corp. “It’s incredible just how harmful markets veer when sentiment slides.”

Innes mostly is keeping his money on the sidelines. But he has been taking profit on some winning investments. And, also, from blue-chip stocks whose valuations have dropped in the December sell-off.

Like many other traders in Asia, he’s been watching events play out in the U.S. from a distance, astonished at what he sees.
So, what he did see?

Source: Bloomberg

The S&P 500 Index posted its biggest upward reversal since 2010 on Thursday. Just a day after the largest advance since 2009. Despite this two-day gain, the measure is still down almost 10 percent in December alone.

That’s the largest drop for each key market barometer since 1931, according to data from LPL Research. But those Depression-era losses were much bigger: the S&P 500 plunged 14.5% while the Dow plunged 17%.

Two golden rules have been broken.

First, since 1945, December has produced the highest average gains of any month. But December is the worst month of the year. Second, since the 1970s, the S&P 500 has never slumped when earnings growth was more than 10 percent.

Mark Matthews, head of Asia research at Bank Julius Baer & Co. in Singapore, is planning to ride it out. “I remain invested through good times and bad,” he says. “Not being invested, over the long term, is like betting against the house in a casino.” He is a long-only investor.

The December 2018 chaos is making investors nervous.

This chaotic December in 2018 could have an impact in the future. The investors are worried that the economy could slow in 2019 because of continued trade tensions with China and rate hikes by the Federal Reserve.

The Dow and S&P 500 are both in the red for the year, their worst annual loss since the 2008 Great Recession, and first annual loss since 2015. Last year, the S&P 500 returned 22%.

For the past, eight to nine years never happened the U.S. market dropping at this magnitude and speed.

Maybe the solution is to go overweight cash for the time being. The volatility will continue until year-end until investors get a clearer picture from the holiday earnings season, say experts.

But longer-term, it is unknown if this will prove a “healthy correction”. The investors may find the S&P 500’s low valuations are attractive and earnings come in above expectations. Or it will mark the end of the bull run. Either way, one thing’s for certain, this movement is definitely unusual.

This market turbulence isn’t normal.

Maybe investors should keep away from new trades and tend to the existing investments. Anyway, investors opinion is very bad.

Yes, most of them don’t think that this huge volatility will continue. But also, they are thinking that it is not a quite good idea to trade stock while the market is like this.

The investors can’t hope that the markets will turn around in the year’s final days. They are here and it is obvious that nothing will change.

In the past years, December was usually a very solid month for the market. Professional money managers used to buy top-performing stocks. That made their portfolios look good. This phenomenon is known as window dressing.

There was also the somewhat mysterious Santa Claus rally effect. The market was very well in the final week of the years.
There was some chalk up to light trading volume with so many people off for the Christmas holiday.

But volatility remained this year. Stocks are down.

It is, as we can see, unusual for this time of year. But the people take holidays. They have hope that the U.S. economy is robust and the sell-off will bottom out.

For this time of year, some people are probably a little more focused on the market.

But trying to explain short-term movements in the markets is an exercise in futility because generally, it is pretty random.

Not only stocks, but Bitcoin has also had a brutal 2018.

This chaotic December in 2018 had an impact on cryptos too.

The world’s largest cryptocurrency by market cap is nearly 84% since its meteoric rise topped out at an all-time high of $19,870 in December 2017.

But just after bitcoin (BTC-USD) peaked, technical trader Peter Brandt made a fantastically prescient call. This has recently resurfaced in crypto circles. In January, he called for an 80% retrace of bitcoin’s parabolic advance, predicting a $3,933 price target. Bitcoin is currently trading around $3,600. It was very close.

But as ever, there were different opinions.

The dominant Bitcoin price prediction was that Bitcoin would reach the $14,000 mark by the end of 2018.

However, that prediction is blown out.

Despite some optimists who were hoping that Bitcoin will break through the $100,000 barrier till the end of this year. In fact, Jim Cramer was predicting that Bitcoin will go as far as shattering the million dollar threshold one day.

To do so, market capitalization should surpass 1 trillion USD just on BTC to reach $66,000 per coin, a 10x increase. Well, the entire market cap is at $212 billion. The BTC market cap was $170 billion almost a year ago. Now it is $115 billion and it was at $800 billion in January 2018.

So, who knows what can happen.

Today’s price of BTC you can see here

One thing is certain. After this chaotic December in 2018, next year will be difficult and uncertain. Markets will be full of volatility. Permanent ups and downs.

Anyway, it will be interesting.

Risk Disclosure (read carefully!)

2nd January 2019
Bitcoin Bear Market Is Far From Over

2 min read

Bitcoin and the Bear market? Why the bear markets are the best time to be in crypto?

Recently, Bitcoin made a strong rally. Enough to break past the neckline of its double bottom at $3,600 to $3,700. This can be an uptrend underway. If buyers keep the price above the area of interest, it will be possible.

If you apply the Fibonacci retracement tool on the latest swing low and high shows that the 38.2% to 50% levels span the former resistance. That might now hold as support. That means bitcoin could recover to around $4,035 and beyond.

Analysis indicates that the current Bitcoin price chart entirely mirrors that seen in late-2014 and early-2015, this market’s last moody bear market.

What happened then?

2013 marked a very significant year not only in the history of Bitcoin’s bear market but in the history of Bitcoin as a whole. In October 2013, FBI officially shut down the Silk Road.

Silk Road was an online black market. It also represented the first modern darknet market. However, Silk Road’s represented the crypto asset’s first form of widespread user adoption.

The Silk Road closed activity in October of that year. But the price of Bitcoin continued to rally until the end of November before the market had fully systemized the effects of that event.

It is impossible to know when Bitcoin has reached its peak while events are ongoing. Even more, the media didn’t help paint a clear picture of reality. At the time, even as the price of Bitcoin began dropping, headlines were incredibly optimistic.

But, during Bitcoin’s reversal period in January 2015, the general sense in media’s headlines was negative.

These headlines did not provide any positive signals to indicate the bottom of Bitcoin bear market, at that time.

Let’s go back to 2018! What is happening now with Bitcoin?

Although many have claimed that Bitcoin, has finally touched the bottom in 2018’s market downturn, data indicates that many investors still see plentiful amounts of value in blockchain-based assets.

The research group divulged that the 30-day moving average of Bitcoin flow into investors’ wallets has been on the rise, eclipsing the $400 million milestones as of November 1st. Well, $400 million out of Bitcoin’s current $65 billion market capitalization isn’t especially important. In June, this same figure was $300 million. In that period, the price of Bitcoin was approx $6,000. Those days it is about $3,750. November’s inflows should be seen as a bullish indicator.

The data suggests that investors have sought to accumulate Bitcoin at lower prices. Many investors started to allocate more capital towards Bitcoin, due to their long-term belief in the asset’s underlying value.

That wasn’t the case only with “personal wallets”. The institutional players via Grayscale Investments saw an increase in Bitcoin balances. It is an investment-centric subsidiary of the conglomerate that is Digital Currency Group (DCG).

Since the start of 2018, Grayscale has seen its Bitcoin coffers swell by 30,600 BTC to 203,000 total.

Now it accounting for more than 1% of the asset’s total circulating supply.

As seen in the chart above (sourced from LongHash), the wallets pertaining to Grayscale’s GBTC, a vehicle that allows retail and investors to purchase customized BTC on the U.S. OTC market, has seen month-over-month increases.

Markets move solely based on the demand from investors. Hence, if investors think a large rally cannot be maintained throughout the years to come, then some of the largest markets can experience steep sell-offs.

Bitcoin made the recovery and market watchers are pinning it on a number of factors. First is the Coinbase offering of crypto to crypto trading that could boost volumes in the retail sector. Next is the report that Mark Dow, the former IMF economist that opened a major short play on bitcoin after it hit its all-time highs, closed his remaining position also led many to think that he may already be seeing a market bottom.

Bitcoin could take a longer time to recover than in previous years.

Because the market is more structured.

But, it is wrong to claim that Bitcoin could drop to zero because of its 85 percent decline in price this year. This because, in the previous year, it demonstrated a 1,850 percent gain. And a major correction was expected after such a large movement.
But many aren’t convinced that lines can be accurately drawn. The Bitcoin industry has matured beyond measure in the past year alone, and even more so in the past four. Moreover, others have claimed that the worst has yet to come for crypto assets.
Vinny Lingham, CEO of blockchain-centric identity ecosystem Civic, explained that trading within the aforementioned $2,000-wide range is likely to continue for a minimum of three to six months, a common timeline in the eyes of Bitcoin’s short-term bears. The entrepreneur added that if a convincing breakout isn’t established by the end of Bitcoin’s six-month range, a strong foray under $3,000 wouldn’t be out of the realm of possibility.

The Civic chief noted that Bitcoin will likely remain range-bound between $3,000 and $5,000 “for a while.”

But Fundstrat’s Tom Lee said: ”Bear markets are a ‘Golden Time’ to be in crypto.”

Bitcoin bear market is far from over, this is the opinion of analytics.

Risk Disclosure (read carefully!)

20th December 2018
Growth fears pushed Russell 2000 into Bear area

1 min read

Russell 2000 – That is going to say, we’re about the way to a bear market.

Russell 2000 is pushed into the Bear territory by growth fears!

Looks like the Bear Market is already here.

What happened?

Small American stocks have tumbled into a big hole, reflecting mounting slowdown fears on Wall Street, reported CNN.

The Russell 2000 fell into the hole, in the middle of a wave of selling. The major market indexes are in red.

The DJIA, S&P 500 and Nasdaq are all well into correction territory. They are down more than ten percent from their previous highs.

Russell 2000 – Market indexes are red!

The Russell 2000 index of small-cap stocks dived into a bear market on Monday. It happened after a 20% decline since hitting a record high in late August.

That marks the first bear market for the index since the downturn that spanned June 2015 to February 2016, according to Bespoke Investment Group.

The media’s conclude that investors are scared by the Federal Reserve rate hike.

“Investors are showing real caution about the pace of economic growth for the US next year,” said Nicholas Colas, co-founder of DataTrek Research. “Confidence is falling,” added he for CNN.

The index contains 2,000 smaller companies that do little business overseas. As such making them highly exposed to swings in the domestic economy.

The index is viewed as a barometer for confidence in American growth.

Small-cap stocks sometimes lead the broader market. That’s the reason for making a Russell 2000 bear market a potentially ominous event.

It’s the fear of a recession and that is very real.

How the Fed made this situation as real?

The Fed’s job is monetary policy. They have to keep unemployment low and inflation under control.

Trade war worries

About 40% of the debt held by Russell 2000 companies is floating-rate, according to Peter Boockvar, chief investment officer at Bleakley Advisory Group. The cost to service that debt has climbed in tandem with the Fed’s two-year of raising interest rates.

“That’s potential stress if growth is slowing in the United States, which the markets are betting on,” said Boockvar.

Moreover, about one-third of Russell 2000 companies are unprofitable.

That number could rise if the US economy gets stuck.

It looks that the odds of a US recession over the next 12 months have climbed to about 30%. That would be the highest level during the nine-year economic expansion.

The Russell 2000 climbed 13% last year. The investors bet that US-focused companies would avoid getting caught in the middle of trade wars. Multinational companies like Nike (NKE), Apple (AAPL) and Boeing (BA) dominate the S&P 500 and Dow.

This was a safe haven. But it ended up being a very crowded trade. And everyone knows what happens to a crowded trade when the tide goes out.

The idea that smaller companies would avoid the fallout of the crackdown on trade was flawed. Now it is obvious.

The reason is that Small-cap stocks do business with big-cap stocks.

Markets were in the midst of the longest bull market in American history. This began in March 2009. But the bull has been stumbling pretty badly of late, leading some analysts to investors to wonder whether this is the start of a bear market.
It is commonly measured by a 20% fall from a previous peak.

After a brutal decline in US stocks in October, both the S&P 500 and Dow Jones Industrial Average slipped into the red for the year. That caused erasing all the gains made in 2018.

The benchmark S&P 500 has fallen more than 9% from it’s the all-time peak at the same time. So, stocks continue to slide.
That is going to say, we’re about the way to a bear market.

Risk Disclosure (read carefully!)

18th December 2018