​NIRP Crash Indicator back to Pre-Crash Level

Michael Markowski | Friday, 29 April 2016 01:06 (EST)

Summary

Indicator had been upgraded to Yellow caution from Orange Pre-crash level on April 22

Yen Volatility is reliable leading Indicator for global equities markets

Yen has biggest one day gain versus dollar since 2010 on April 28, 2016

The appreciation of the yen versus all of the world's currencies on April 28, 2016, has resulted in the NIRP Crash Indicator going from a Pre-Crash Orange reading to a Cautionary Yellow reading. The NIRP indicator going from Yellow to Orange increases the probability of a market crash being imminent.

The ranking system for the NIRP Crash Indicator’s signals are freely available and posted at www.dynastywealth.com daily, as follows:

Red: Full-Crash; Orange: Pre-Crash; Yellow: Caution; Green: All-Clear.

Information about origin, development and reliability of the NIRP Crash Indicator is also available at the Dynasty Wealth website.

The signal change was the result of the yen making significant gains against all of its major peer currencies on April 28, 2016. The yen’s three percent appreciation versus the dollar represented its largest increase for a single day since 2010. The sudden and significant appreciation of the yen was caused by the Bank of Japan (BOJ) announcing upon the conclusion of its April 28, 2016 meeting that it would not be increasing the utilization of monetary stimulus.

Currency exchange rate volatility between the yen and all of its major peer currencies has escalated to levels previously unseen. As recently as Friday, April 22, 2016, the NIRP Crash Indicator went from Orange, where it had been firmly entrenched since April 1, 2016 to Yellow, after having spent the entire month of March at Cautionary Yellow. See "No April Fool's Joke: NIRP Crash Indicator Elevated to Pre-Crash Warning".

After the NIRP Crash Indicator experienced extended periods of stability with only one signal change from the beginning of March through the first 22 days of April, the volatility of the indicator has increased considerably. The signal went from Orange to Yellow on Friday April 22 and back to Orange within six days on Thursday April 28. For more about this see my recent  Seeking Alpha post.

Yen is a reliable leading indicator for global equities markets 

Based on the 40 years of experience that I have in predicting the movements of markets, stocks and currencies, etc., and the research that I have conducted on prior crashes, including the Crash of 2008, my conclusion is that when volatility increases significantly for the yen it becomes a leading crash indicator. The Japanese yen and the U.S. dollar are the world's two largest single country reserve currencies. For this reason, the yen is the best default safe-haven currency utilized by investors during any U.S. and global economic and market crises. When crises unfold, historically the U.S. dollar — by far the world's most liquid and largest safe-haven currency — is susceptible to dramatic declines until the storm has passed.

Savvy investors know that the U.S. is, unquestionably, considered the world's leading economy and markets. They know that upon a crash of the U.S. stock market the initial knee-jerk reaction would be a simultaneous crash of the U.S. dollar versus the world's second leading single-nation currency. The yen is currently the default-hedge currency. Even though the euro, arguably, ranks with the U.S. dollar as the world's top reserve currency, it is not the preferred hedge against the greenback. The euro is shared by 19 of the European Union's member countries that have wide-ranging social and economic policies, and political persuasions. For this reason, and also because Japan is considered to be one of the most fiscally conservative countries on the planet, the default currency is the yen. The U.S. dollar does not experience extended crashes versus the Swiss franc and the British pound during times of crises because each of the underlying countries has economies much smaller than Japan's.

The currency and S&P 500 charts below depict the performance of the dollar yen exchange rate and its corresponding relationship to the performance of the S&P 500. The charts are for the 12 month and 10 year periods ended April 8, 2016. These charts were utilized for my conducting of the research and the charts were incorporated into my April 11, 2016, "Yen Volatility Is Leading Indicator For Market Sell-Offs" post. I highly recommend the viewing of the 7 minute 35 second video below "Yen Volatility Causes Market Crashes". It is a video interview of me by SCN’s Jane King about the subject matter of this specific report. I also explain all of the charts in this report during my interview.

The trajectory of the extended downward spikes of the U.S. dollar versus the yen in August of 2015, and from January 31, 2016 to February 11, 2016 coincide with the downward spikes that were made by the S&P 500 and Nikkei 225 over the same periods. (The S&P 500 and Nikkei 225 chart appears under the chart immediately below.)

The "S&P 500 vs. Nikkei 225" chart above depicts the price performance correlations between the two major world stock indices for the global stock market crashes that occurred in August of 2015 and January/February of 2016. The above chart also depicts the divergence, or anomaly that has occurred between the Nikkei 225 and the S&P 500 since the beginning of April 2016. Given the prior price crash correlations of the world's two major stock indices, which coincide with the crashes of the U.S. dollar as compared to the yen, the probability is high that the divergence, or anomaly will prove to be temporary.

The 10-year U.S. dollar and Japanese yen chart below explains the relationship between the U.S. dollar and the yen during the crash of global markets that began in 2008 prior to Lehman's declaring bankruptcy, and lasted into early 2009. The chart depicts the U.S. dollar's declined by approximately 20% from 110.55 yen to 87.28 yen during the four-month period, which began in August of 2008 and ended in December of 2008. The chart depicts an approximate 10% decline in the U.S. dollar as compared to the Japanese yen from February to April of 2016. The chart also depicts that the U.S. dollar as of April 8, 2016 has not yet bottomed. Further, should the decline be equivalent to the decline of 2008 the U.S. dollar would fall below 100 yen.

Below is a 10-year price-comparison chart for the S&P 500 and the Nikkei 225. At July 1, 2008 the charts for the Nikkei 225 and the S&P 500, which had been descending since May of 2008, diverged. The Nikkei 225 continued downward and the S&P went upward on July 1, 2008. The Nikkei continued on a downward spike trajectory until the index reached a base of support on October 1, 2008. The S&P 500 continued on its slightly upward trajectory until August 1, 2008. The S&P 500 than began a rapid descent, or spike, that resulted in its not finding its first base of support until November 1, 2008. Based on the 2008 charts, the Nikkei led the S&P 500 by a month during the crash of 2008. The chart also depicts the most recent divergence of the S&P 500 and Nikkei 225.

In Summary

Based on the body of research that I have conducted on spreading negative rates and the devastating effect that they are having on the global banking system, the probability is high that the major global stock indices (including the S&P 500) will begin a significant decline by 2018 at the latest. My April 11, 2016 article entitled, "Negative Rates Could Send S&P 500 To 925 If Not Eliminated," provides details about the potential mark down of the S&P 500 could likely be in stages. I highly recommend the viewing of my 9-minute 34-second video interview by SCN’s Jane King, entitled, "Why Negative Rates Could Send the S&P 500 to 925". In the video below I explain the math supporting the S&P 500’s decline to below 1000, and the reason it may be the only remedy to eliminate negative rates.

There are two reasons I am recommending the Short biased ETFs listed below: (i) the NIRP Crash Indicator going from Yellow to Orange has heightened the probability of a crash occurring; (ii) and, the three key central banks of the world — including the Bank of Japan (BOJ), European Central Bank (ECB), and the U.S. Federal Reserve — will not hold scheduled policy meetings until June of 2016. What that means is that the central banks cannot initiate any new monetary stimulus until June. The announcement by the BOJ on April 28, 2016 that it would not be adding any additional stimulus is bound to weigh on the markets until the next policy meetings are held by any of the key central banks. Since most of the appreciation of the markets since the crash of 2008 has been attributable to monetary and fiscal stimulus it is logical to conclude that the BOJ’s “do-nothing” decision will encourage profit taking during the month of May.

• ProShares Short S&P 500 ETF (NYSEARCA:SH)
• ProShares UltraPro Short Dow30 (NYSEARCA:SDOW)
• ProShares UltraPro Short S&P500 (NYSEARCA:SPXU)
• ProShares UltraPro Short QQQ (NASDAQ:SQQQ)
• ProShares UltraPro Short Russell2000 (NYSEARCA:SRTY)
• ProShares Short Dow 30 (NYSEARCA:DOG)
• ProShares UltraPro S&P 500 (NYSEARCA:UPRO)
• ProShares UltraShort Dow30 (NYSEARCA:DXD)
• ProShares UltraShort 20+ Year Treasury (NYSEARCA:TBT)
• ProShares UltraShort QQQ (NYSEARCA:QID)
• ProShares UltraShort S&P 500 (NYSEARCA:SDS)

Finally, the BOJ’s April 28, 2016 announcement reduces the probability of the market spiking to new highs in the near term.  See “Bank of Japan Announcement Could Spike Market to New Highs”, April 27, 2016. 

Below please find active links to all of my articles pertaining to negative rates:

• Japan's NIRP Increases Probability of Global Market Crash, March 4, 2016
• Negative Rates Could Send S&P 500 To 925 If Not Eliminated, April 11, 2016
• Negative Rates Pose Grave Risks To All Global and U.S. Banks, April 11, 2016
• Yen Volatility Is Leading Indicator For Market Sell-Offs. April 11, 2016
• Bank of Japan Announcement Could Spike Market to New Highs, April 27, 2016

For the record, throughout my 40-year career I have always been a bull investor and have never invested as a bear. Even with my concerns about the macro-market, I am very bullish on several public and private micro-cap opportunities, which have the potential to multiply by 10- to 100-times by 2020. My reports covering some of my recommendations are FREELY available at my Dynasty Wealth Investing community’s website.

Related Party Transactions Appear to Be Slippery

Titan Machinery (NASDAQ: TITN $12.93)  recently filed annual audited financial statements for FY2016 10K which ended on January 31,2016. Titan today filed their Definitive 14 proxy statement with the Securities and Exchange Commission for its upcoming June Shareholder meeting.
(4 of 8 directors that sat on Board from last May 2015 have now resigned according to latest 10K, including the founder of company who also quit as the president without any explanation, No new president has been named since he quit as president in June 2015.)

TITN stock has sky rocketed UP 62% from $8 on February 11th to $12.93 in 10 weeks. A Penny Stock Brokerage Firm out of Minnesota , FELTL,has said after the company reported over a (-$30 Million) Loss for the 2nd consecutive FY that the stock could "easily" go to $40 as reported by Dow Jones on the morning of March 18th when shares had one of top volume days of the year. IN November FELTL estimated that TITAN would have net income of $20 Million in FY2017, Titan said on CC that they would NOT be profitable in FY17.

Normally a Definitive proxy filing would be a run of the mill cookie cutter disclosure naming directors and small proposals up for a vote that are usually insignificant, but not when it involves  Titan Machinery!

Equities Research first raised a red flag on the issuer based on poor fundamentals, specifically a pattern of Cashless Earnings with significant amounts of negative operational cash flow. A further examination learned that the company was no more than a roll up story consisting of mom and pop retailers that the company was financing through the issuance of debt and more debt. But it wasn't until the company filed a PROXY Statement in April of 2013 that it was discovered this company was being financially raped by management's related party transactions.

Today we won't discuss the DEF 14 filed in April 2013 that the Securities and Exchange Commission  Division of Corporate Finance spent 8 months exchanging comment letters on with the company.

Today we won't discuss the Proxy Proposal that was voted down by the Shareholders in June 2013.

Today we won't discuss the DEF 14 filed in 2015 when the Company asked for shareholders to give their proxy vote to the President of the company only to have the President suddenly resign from the company (3 days after the filing) without updating the DEF14. (Company has still not disclosed why the founder resigned from the board, stepped down as president and left the company. The company has not had a president since June 2015. Severance Agreement has been disclosed.)

OWNER (& Spouse) of a Titan Machinery Related Party, Charged with 29 FELONY TAX CRIMES

In 2012 the Minnesota Department of Revenue Charged the owner of C.I. Construction with 21 felonytax crimes.
Since the charge, C.I. Construction has generated revenue of $13 million directly from Titan Machinery. (prior to the charge we are to believe that C.I. Construction did not do any business with Titan)

MAY 2013 Titan Machinery for the First time Included C.I. Construction as a Related Party
Its peculiar that C.I. Construction was not disclosed as Related Party prior to 2013 considering Titan Machinery grew from 2 stores to 100 stores over that time span.
Here is A Video from YouTube that CI CONSTRUCTION advertises for the work they did for Titan Machinery in FY2012. But there was NEVER ANY DISCLOSURE OF THIS RELATED PARTY DEAL IN SEC FILING FY2012.
Fact is C I Construction was a related party with Titan prior to FY2013 but there was no disclosure.
http://articles.aberdeennews.com/2011-10-21/farmforum/30308885_1_titan-machinery-case-ih-storage-building

           
Today we will shed light on the RELATED PARTY TRANSACTION  that the company discloses with a construction company which is also a reseller of the company's products.
The company discloses in their filings that the contractor, C.I. Construction, owner is a brother in law of two brothers that founded TITAN MACHINERY and sit on the board. (one brother is the president who recently resigned and the other who also is the investment banker to Titan still sits on the board.)

C I Construction is disclosed in SEC filings as a RELATED PARTY because the Owner, Rob Thompson, is the (3) brother in law of the two founders (directors) and the Treasurer of the company.

C.I.CONSTRUCTION (RELATED PARTY) Received the following Payouts:
FY2013: $6.7 Million
FY2014: $3.9 Million
FY2015: $1.9 Million
FY2016: $0.5 Million 
total 4 years: $13 Million
In the past year C.I. advertises on their website they are building 2 of the biggest projects in the history of Titan and its peculiar that they ONLY earned $500K in FY2016? hmmm

Ted Christensen is the treasurer of Titan Machinery but is also listed as an officer of C.I.Construction.
TITAN Disclosure (Ted Christianson is our Treasurer and Vice President, Finance. He joined Titan in 2003 and is responsible in his senior financial role to secure access to capital both domestically and internationally as well as managing overall financial risk.)

  

Ted Christensen is also listed as an officer of Dealer Sites, LLC which is also disclosed as a RELATED PARTY of TITAN MACHINERY. DEALER SITES is an entity that many of the Management of TITAN have an EQUITY INTEREST (Christensen family members and the Chairman of TITAN, David Meyer.) Dealer Sites has recently disclosed it has increased contracts with DEALER SITES from under $50 Million to over $100 Million.

IT GETS MORE BIZZARE. IS C.I.Construction and Dealer Sites one in the same? According to this TAX document , YES. And this GOVERNMENT Document too. C.I CONSTRUCTION shares the Same Address of DEALER SITES on certain other Documents with Ted Christensen as the contact person.

Another RELATED PARTY DISCLOSURE in Titan Machinery Disclosure  is C.I. FARM POWER refers to a company owned by company's founder , Peter Christensen who recently Suddenly stepped down as a Board Member and resigned from company.
THERE is no disclosure whether C.I.FARM POWER is related to C.I. Construction. I am assuming that C.I. in the Farm Power company and the C.I. Construction are both created from Christensen Incorporated.
In 2011 when Peter Christensen disclosed in his sale of 200,000 shares of stock @ $27.80 the position that he sold was shares of C.I. Farm Power.

According to this Article: C.I. stands for Christenson Incorporated and is owned by ROB THOMPSON and PETER CHRISTENSON.  But there is NO DISCLOSURE in SEC Filings pertaining to Thompson owning CI Farm Power nor Christenson owning CI CONSTRUCTION.

• "Earl Christianson became the sole owner of Christianson’s Inc. and, Earl’s son Peter and son-in-law Rob Thompson are assuming leadership positions in what has become a three-generation family business" 

2016    Construction Management Services Performed by C.I. Construction, LLC
C.I. Construction, LLC ("CI"), performs construction management services for certain of the Company's new store construction projects, shop additions, and remodel projects. CI is owned by Rob Thompson, who is the brother-in-law of Peter Christianson (our former President and former member of our Board of Directors) and of Tony Christianson (a member of our Board of Directors). CI performs construction management services including developing designs/specifications and drawings, preparing bid packages, advising on the selection of suppliers and contractors, and overseeing the construction process. CI is also an authorized reseller of certain steel buildings that the Company frequently incorporates into its construction projects.
CI receives a fee equal to 4.5% of the construction costs, excluding expenditures for certain fixtures and fixed assets that the Company originates. CI is also reimbursed for the labor costs of CI's site supervisors and on-site staff, and utilities, equipment rental, travel, and other direct costs incurred by CI in performing the services. CI also receives payment as a reseller of the steel buildings used in certain of our construction projects. We are not obligated to retain CI on an ongoing basis, and this decision will be made for each project based on the best interests of the Company. During fiscal 2016, CI received an aggregate amount of $474,717 in direct or indirect payments from the Company for the performance of construction-related services and the purchase of steel buildings, as well as reimbursement for other construction-related costs.

2015  Construction Management Services Performed by C.I. Construction, LLC

C.I. Construction, LLC, ("CI") performs construction management services for certain of the Company's new store construction projects, shop additions, and remodel projects. CI is owned by Rob Thompson, who is the brother-in-law of Tony Christianson (a member of our Board of Directors) and Peter Christianson (a member of our Board of Directors and our President). CI performs construction management services including developing designs/specifications and drawings, preparing bid pack ages, advising on the selection of suppliers and contractors, and overseeing the construction process. CI is also an authorized reseller of certain steel buildings that the Company frequently incorporates into its construction projects.

CI receives a fee equal to 4.5% of the construction costs, excluding expenditures for certain fixtures and fixed assets that the Company originates. CI is also reimbursed for the labor costs of CI's site supervisors and on-site staff, and utilities, equipment rental, travel, and other direct costs incurred by CI in performing the services. CI also receives payment as a reseller of the steel buildings used in certain of our construction projects. We are not obligated to retain CI on an ongoing basis, and this decision is made for each project based on the best interests of the Company. At times, we have utilized a competitive bidding process for construction management services.

During fiscal 2014, CI received an aggregate amount of $3.9 million in direct or indirect payments from the Company for the performance of construction-related services and the  purchase of steel buildings, as well as reimbursement for other construction-related costs. We do not believe the terms of any of the transactions and agreements described above are any less favorable to us than could be obtained in an arm's length transaction with an unrelated party.

CI CONSTRUCTION PROJECTS

CLIFF NOTES (include)

• INFLATED ASSETS AND UNDERSTATED LOSSES
• INSIDER SELLING
• INSIDER TRADING BEFORE NEWS
• RELATED PARTY TRANSACTIONS
• SEC COMMENT LETTERS
• Auditor Sudden Resignation
• RELATED PARTY TRANSACTIONS

Here is Work done by CI Construction in 2012 
Was this a related party transaction?

Bank of Japan (BOJ) Pounding Nails in Bull Market’s Coffin

Michael Markowski | Monday, 25 April 2016 13:41

Bloomberg’s reporting last night that the BOJ (Bank of Japan) had accumulated the equivalent amount of shares to be among the top 10 shareholders for 90% of the Nikkei 225 could very well be “the final nail in the coffin” of the global bull market, which was born on March 9, 2009. (Please see Bloomberg, April 25, 2016 article entitled, “The Tokyo Whale is Quietly Buying Up Huge Stakes in Japan, Inc.”.) The article disclosed that the BOJ had also accumulated 10% of the outstanding shares of all Exchange Traded Funds (ETFs) in Japan. Finally, Bloomberg Television reported that BOJ ownership of Japanese equities was equivalent to 1.6% of Japan’s entire stock market.  

With the BOJ’s taking significant equity stakes in Japanese companies it has more invested in the Japanese stock market than BlackRock, Inc., the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion. The BOJ’s actions undermine and challenge the integrity of the world’s stock markets. Further, the activity acknowledges that BOJ and the world’s central banks are desperate, and willing to do anything and everything that they can to prop up the markets.

The disclosure of the BOJ’s equity stakes has thrown cold water onto the reversal of sentiment and momentum for the U.S. dollar and other major currencies versus the yen that occurred on Friday April 22, 2016. My Saturday April 23, 2016 article entitled, “Why Market Could Spike to All-Time Highs Before it Crashes” specifically concerned the exceptional reversal of sentiment that occurred when all of the world’s major currencies appreciated significantly against the yen on Friday April 22, 2016.

Obviously, what I predicted only two days ago has become irrelevant. The U.S. dollar on April 22, had its biggest one day advance versus the yen since October of 2014 advancing by more than 2%. The cause of the change in sentiment was the result of Bloomberg’s reporting that the BOJ was considering instituting a negative rate loan policy. (Please see Bloomberg’s April 22, 2016 article entitled, “BOJ May Consider Negative Rates on Loans”.)

Recent disclosures about the BOJ support statements made in my March 16, 2016, Equiites.com article entitled, “Ridding the World of Negative Rates May Require Meltdown of Income-Producing Assets”. The article provides the math and rationale for the S&P 500’s potential decline by more than 50% to 925 from its current 2080 by early 2018. The article included my prediction that the decline would be gradual and that it would be caused by “... statements that will be made by central bankers” of leading central banks including the BOJ, ECB (European Central Bank) and the U.S. Federal Reserve bank.

In my video interview “Why Negative Rates could send the S&P 500 to 925” below, I explain my rational for the S&P 500 going to 925. In the second video “Markowski Visionary Analyst 5 of 5” below, I explain the Black Swan asset protection strategy that I am recommending. It is the only liquid assets protection insurance.

The research philosophy of the Dynasty Wealth LLC, the “boutique” research firm that I founded perfectly positions an investor with the high-risk and high-return investment opportunities required to effectuate a “Black Swan” investing strategy. Dynasty Wealth evolved from research that I had conducted on the ongoing transformation from the industrial economy to the digital economy. My research findings enabled me to conclude that the period from 2015 through 2020 would be the best ever for investors to generate dynasty wealth returns of 10- to 100-times from utilizing a truly diversified portfolio. The video entitled, “Digital disruptor companies have the potential to get $10 billion valuations quickly,” below provides details about how investing into a portfolio of digital disruptors enable investors to create dynasty wealth. It discusses digital disruptor UBER. A $10,000 investment into UBER in 2010 was valued for $105 million in 2015.

My April 1, 2016 Equities.com article entitled, “No April Fool’s Joke: NIRP Crash Indicator Elevated to Pre-Crash Warning” provides access to all of my March 2016 research reports. Below are the three other video interviews of me explaining negative interest rates:

• Video: Negative Rate Risks Parallel to 2008’s
• Video: Negative Rates Pose Risks to U.S. and all Global banks
• Video: Michael Markowski, Founder, Dynasty Wealth sits down with SCN's Jane King

Additional videos are available explaining digital disruptor and first mover companies, whereby selectively investing in these market niches enables an investor to create dynasty wealth relatively quickly. (Please see http://www.dynastywealth.com/video.php.) In-depth information regarding my past and current predictions is available at www.michaelmarkowski.net.

My predictions are frequently ahead of the curve. The September 2007 predictions that appeared in my EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. For this reason I had to advise readers to get out a second time in my January 2008 column entitled “Brokerages and the Sub-Prime Crash”. My third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. For my article entitled,“The Carnage for Financials Isn’t Over” I reiterated that share prices for the two remaining public companies continued to be too high. By the end of November 2008 share prices of both Goldman and Morgan Stanley had fallen by an additional 60% and 70%, respectively — new
all-time lows.

Why Market Could Spike to All-Time Highs Before it Crashes

        Michael Markowski | Saturday, 23 April 2016 17:57 (EST)
Following the close of the markets on Friday April 22, 2016, the NIRP Crash Indicator went from a pre-crash Orange level, where it had been holding steadily since the close of trading on April 1, 2016, to a Yellow caution signal indicating that the probability of an imminent market crash has diminished. Please see my April 1 Equities.com article entitled, “No April Fool’s Joke: NIRP Crash Indicator Elevated to Pre-Crash Warning”.

The catalyst for the change to Yellow was Bloomberg’s April 22, 2016 article entitled, “BOJ May Consider Negative Rates on Loans”. The subject matter of the article resulted in the sentiment of the U.S. dollar and euro versus the Japanese yen switching from a very recent negative to extremely positive. The BOJ’s (Bank of Japan) instituting of the new stimulus policy could potentially spike most of the world’s equities markets to new all-time highs by the end of 2016. NIRP crash signals are published and freely available each day at www.dynastywealth.com:  

• Red — full crash 
• Orange — pre-crash
• Yellow — caution
• Green — clear

The chart below depicts the advance of the U.S. dollar versus the Japanese yen for the week ended April 22, 2016.  

I predict that an announcement by the BOJ that it is instituting negative rate loans could occur as early as April 28, 2016 when the BPOJ’s April Policy meeting concludes. This announcement has the potential to be more earth shattering to the capital markets than the BOJ’s January 29, 2016 announcement that they were instituting a Negative Interest Rate Policy (NIRP). Such an announcement by the BOJ will likely result in an increase in market volatility to the upside versus the downside, which occurred following the BOJ’s NIRP announcement.

From my research I have conclude that the yen is a leading market indicator. My April, 9, 2016 Equities.com article entitled, “Yen Volatility puts Markets on Precipice of Crash” and video interview below entitled “Yen Volatility Causes Market Crashes” contains the evidence of the yen’s predicting the crash of the markets in 2008 and also the V-shaped reversal off of the March 2009 bottom.

Should the BOJ announce at any time that it is instituting a Negative Rate Loan policy, it is conceivable that the markets could spike to levels eclipsing their 2015 highs. This new BOJ stimulus policy would cause a dramatic, but temporary, increase in the prices of all of the world’s bonds and dividend paying stocks.

Under a negative rate loan a bank pays a borrower to borrow monies. This would, no doubt, stimulate loan demand. The borrower could utilize the proceeds from the loan to make a spread by investing into stocks and bonds that pay a dividend or carry a coupon. The influx of cash being funneled into the stock markets of the U.S. and the other developed countries in Europe and Asia would be huge. Additionally, should the BOJ institute a negative rate loan policy it would likely be adopted by the European Central Bank.

The implementation of negative rate loan policies by the BOJ and the world’s other central banks would better stimulate the world’s capital markets as compared to any of the previous monetary or fiscal stimulus policies that have been previously utilized since the crash of 2008. However, the effect of such stimulus would prove to be very temporary. Negative rate loans would not stop the spreading of the negative interest rates that will eventually render the world’s banking system dysfunctional and cause a collapse of the world’s capital markets. See my April 11, 2016 report entitled “Negative Rates Pose Grave Risks to Banks” which includes imbedded videos.

Assuming that Japan institutes negative rate loans, it is very likely that most of the world’s stock markets could substantially eclipse their 2015 highs by the end of 2016. It would result in a blow-off, or a final upward spike, in the prices for all of the dividend paying shares and corporate bonds trading in all of the world’s developed countries. Should such a scenario unfold I would not be surprised by the markets increasing by 10% abov3e their 2015 highs. A spiking market would increase the probability of and speed up the time-table for the eventual crash of the markets since the yields on all U.S. sovereign debt Treasury securities will go negative much more quickly. The massive bubble for the prices of income-producing assets that would likely form, would result in the eventual crash of the markets becoming more horrific than previously imagined.

The NIRP Crash Indicator has performed reliably since I developed it in February of 2016. See Equities.com “New Indicator to Predict Market Crashes”, March 7, 2016. After the indicator spent the entire month of March 2016 at the Cautionary Yellow level, its reading went to Orange after the close of Friday April 1, 2016. Subsequently, during the week ending April 8, the world’s stock and currency markets experienced increasing levels of volatility not experienced since February of 2016. For the week ending April 8 all of the U.S. stock indices, including the S&P 500 and the Dow 30 Industrials composites, declined by more than 1% and the dollar closed at 18-month lows versus the yen.

Below is a one-month chart comparing exchange rates for the U.S. dollar and Japanese yen. The significant decline for the dollar versus the yen that began on March 29, 2016 and continued through the close of Friday April 1, 2016 resulted in the NIRP Crash Indicator going from Cautionary Yellow to Pre-Crash Orange after the market closed on April 1, 2016. After bottoming on April 7th the exchange rate between the dollar and the yen stabilized with the lows being tested on April 11th and 18th. With the appreciation of the dollar that began during the week beginning April 18th and culminated with a spike back to the April 1, 2016 exchange rate level on April 22, 2016, the NIRP Crash Indicator’s signal concluded its Yellow-Orange-Yellow round-trip.

Negative rate loans would have profound effects on all of the world’s markets. This would include sovereign debt securities, commodities, gold, oil and currencies. I will produce a report that will cover the effect on all of the markets when I am in possession of final details regarding the BOJ’s plan to institute negative rate loans. The BOJ is expected to announce the new policy during the central banks’ scheduled April policy meetings that will conclude on April 28, 2016. The report will be available at www.dynastywealth.com pending receipt of BOJ’s announcement.

In Summary

Based on all of the research that I have conducted on the spreading negative rates and the devastating effect that they can have on the global banking system the probability is high that the major global stock indices including the S&P 500 will begin a significant decline by sometime in 2017 at the latest. My March 16, 2016 article entitled, "Ridding World of Negative Rates May Require Meltdown of Income-Producing Assets”, provides details about the potential mark down of the S&P 500 could likely be in stages. My interview “Why Negative Rates could send the S&P 500 to 925” provides the rationale for why the S&P 500 could decline to under 1000.

For those preferring to liquidate as soon as possible, instead of their having to monitor Dynasty Wealth’s “NIRP Crash Indicator” that is monitoring for the next market crash, my recommendation is that they employ a “black swan” investing strategy. Nassim Nicholas Taleb devised the strategy of investing 90% of one’s liquid assets in government or sovereign debt securities and the remaining amount in extremely high-risk/high-return investments including venture capital and small cap and low priced stocks. The video below entitled “Markowski Visionary Analyst 5 of 5” provides details regarding sovereign debt being the only 100% safe solution that an investor can apply to protect their liquid assets from a market crash or economic calamity.

Taleb’s book (Taleb, N.N. 2007. The Black Swan: The Impact of the Highly Improbable. Random House) spent 36 weeks on The New York Times, Best Sellers list. In his book, Taleb, who had a distinguished career as a trader, contended that banks and trading firms are especially vulnerable to hazardous “Black Swan” events that expose their very defective models. (Please see CNBC interview with Taleb.) 

Taleb’s philosophy is both extremely simple and safe. Invest under the assumption that it is inevitable that there will be a “Black Swan” or one-off event(s) that will devastate a market. Should such an event occur, the result would be that the shares of the companies, even those in the S&P 500 — arguably the world’s highest quality stock index — would get clobbered. Thus, it is ludicrous for an investor to believe that they have little risk because they are fully diversified. Diversification does not protect an investor during periods of extreme volatility or against unforeseen mega-events. Taleb made huge profits from the crash of 1987, the bursting of the NASDAQ dot-com bubble in 2000, and from the crash of 2008.

The research philosophy of the Dynasty Wealth LLC, the “boutique” research firm that I founded perfectly positions an investor with the high-risk and high-return investment opportunities required to effectuate a “Black Swan” investing strategy. Dynasty Wealth evolved from research that I had conducted on the ongoing transformation from the industrial economy to the digital economy. My research findings enabled me to conclude that the period from 2015 through 2020 would be the best ever for investors to generate dynasty wealth returns of 10- to 100-times from utilizing a truly diversified portfolio. The video entitled, “Digital disruptor companies have the potential to get $10 billion valuations quickly”, below provides details about how investing into a portfolio of digital disruptors enable investors to create dynasty wealth. It discusses digital disruptor UBER. A $10,000 investment into UBER in 2010 was valued for $105 million in 2015.

My April 1, 2016 article entitled, “No April Fool’s Joke: NIRP Crash Indicator Elevated to Pre-Crash Warning”provides access to all of my March 2016 research reports and three video interviews covering negative interest rates:

• Video: Negative Rate Risks Parallel to 2008’s
• Video: Negative Rates Pose Risks to U.S. and all Global banks 
• Video: Michael Markowski, Founder, Dynasty Wealth sits down with SCN's Jane King

Additional videos are available explaining digital disruptor and first mover companies, whereby selectively investing in these market niches enables an investor to create dynasty wealth relatively quickly. (Please see http://www.dynastywealth.com/video.php.) In-depth information regarding my past and current predictions is available at www.michaelmarkowski.net.

My predictions are frequently ahead of the curve. The September 2007 predictions that appeared in my EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. For this reason I had to advise readers to get out a second time in my January 2008 column entitled “Brokerages and the Sub-Prime Crash”. My third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. For my article “The Carnage for Financials Isn’t Over” I reiterated that share prices for the two remaining public companies continued to be too high. By the end of November 2008 share prices of both Goldman and Morgan Stanley had fallen by an additional 60% and 70%, respectively — new all-time lows.

DISCLOSURE: The views and opinions expressed in this article are those of the authors. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. 

​Yen Volatility Puts Market on Precipice of Crash

​Yen Volatility Puts Market on Precipice of Crash

Michael Markowski 

The volatility of the yen versus all of the world’s currencies is signaling that a crash of the world’s markets will soon begin. The yen has appreciated significantly against all of the world’s currencies including the euro, U.S. dollar, Swiss franc, and the British pound since April 5, and most notably on April 7, when the yen appreciated by almost two percent versus all of the world’s reserve currencies, including the U.S. dollar, euro, British pound and the Swiss franc. The yen, on April 7, reached 18-month highs versus all of the world’s major currencies. For the week ended April 8, it gained at least 2.2% against all 16 of its world-currency peers. This week, the volume of contracts by speculators for yen to appreciate hit their highest level since 2008.

The strongest indication that the yen will soon cause a crash of the world’s markets was the yen’s resilience versus all currencies on Friday April 8, 2016. The U.S. dollar/yen chart below is a prime example. After the yen had increased by 3% versus the dollar in April, and culminated with the yen going to an 18-month high on April 7, one would have expected some profit taking on Friday, April 8. Indeed, the dollar climbed by almost a point to 109.05. The dollar then proceeded to give up all of its gains, and closed down versus the yen for the seventh consecutive day. Deterioration of the dollar, of the S&P 500, and of the Dow 30 indices in the final hours of trading on Friday April 8 indicates that the yen will rise, and apply more pressure on the global stock indices during the week beginning Monday April 11.

Since the yen has been appreciating significantly versus all of the world’s currencies, the yen’s appreciation bears no relationship to the U.S. Federal Reserve’s existing or future interest rate policies. The yen is appreciating against all of the world’s currencies because it is the world’s default safe-haven currency.

Motivation for my April 1, 2016 article entitled, “No April Fool’s Joke: NIRP Crash Indicator Elevated to Pre-Crash Warning” was the increased yen volatility on April Fool’s Day. The fact that the S&P 500 and Dow 30 indices had closed at their highs for 2016 on Friday April 1, 2016, was completely irrelevant. For the week ending April 8, the U.S markets were the most volatile since February of 2016, and all of the U.S. indices — including the S&P 500, Dow 30, and the Nasdaq — closed down by more than 1%. On April Fool’s day my NIRP Crash Indicator had gone from its Yellow cautionary signal for the entire month of March to a pre-crash Orange level where it has since remained. Orange is the final pre-crash signal before the indicator turns red, which would indicate a significant crash is underway. (The signal for the NIRP Crash Indicator is freely available and is posted at www.dynastywealth.com daily after the close of the markets.)

Based on research that I have conducted on prior crashes, including the Crash of 2008, my conclusion is that when volatility increases significantly for the yen it becomes a leading crash indicator. The Japanese yen and the U.S. dollar are the world’s two largest single country reserve currencies. For this reason, the yen is the best default safe-haven currency utilized by investors during any U.S. and global economic and market crises. When crises unfold, historically the U.S. dollar — by far the world’s most liquid and largest safe-haven currency — is susceptible to dramatic declines until the storm has passed.

Savvy investors know that the U.S. is, unquestionably, considered the world’s leading economy and markets. They know that upon a crash of the U.S. stock market the initial knee-jerk reaction would be a simultaneous crash of the U.S. dollar versus the world’s second leading single-nation currency. The yen is currently the default-hedge currency. Even though the euro, arguably, ranks with the U.S. dollar as the world’s top reserve currency, it is not the preferred hedge against the greenback. The euro is shared by 19 of the European Union’s member countries that have wide-ranging social and economic policies, and political persuasions. For this reason, and also because Japan is considered to be one of the most fiscally conservative countries on the planet, the default currency is the yen. The U.S. dollar does not experience extended crashes versus the Swiss franc and the British pound during times of crises because each of the underlying countries has economies much smaller than Japan’s.

The U.S. indices, including the Dow 30 Industrials and the S&P 500, have not yet discounted the downward volatility spikes that will likely be associated with the Yen’s April 18-month highs, versus most of the world’s currencies, including the U.S. dollar and the euro. On April 1, 2016, the U.S. indices closed at 2016 highs. I predict that the worlds’ major stock indices will soon start to decline significantly and approach their February 2016 lows. The video entitled, “Yen Volatility Causes Market Crashes”, and the charts below provide details regarding the relationship between the yen’s volatility and market crashes.

The currency chart below depicts the performance of the U.S. dollar versus the yen for the last 12 months ended April 8, 2016. The trajectory of the extended downward spikes of the U.S. dollar versus the yen in August of 2015, and from January 31, 2016 to February 11, 2016 coincide with the downward spikes that were made by the S&P 500 and Nikkei 225 over the same periods. (The S&P 500 and Nikkei 225 chart appears under the chart immediately below.)

The “S&P 500 vs. Nikkei 225” chart above depicts the price performance correlations between the two major world stock indices for the global stock market crashes that occurred in August of 2015 and January/February of 2016. The above chart also depicts the divergence, or anomaly that has occurred between the Nikkei 225 and the S&P 500 since the beginning of April 2016. Given the prior price crash correlations of the world’s two major stock indices, which coincide with the crashes of the U.S. dollar as compared to the yen, the probability is high that the divergence, or anomaly will prove to be temporary.

The 10-year U.S. dollar and Japanese yen chart below explains the relationship between the U.S. dollar and the yen during the crash of global markets that began in 2008 prior to Lehman’s declaring bankruptcy, and lasted into early 2009. The chart depicts the U.S. dollar’s declined by approximately 20% from 110.55 yen to 87.28 yen during the four-month period, which began in August of 2008 and ended in December of 2008. The chart depicts an approximate 10% decline in the U.S. dollar as compared to the Japanese yen from February to April of 2016. The chart also depicts that the U.S. dollar as of April 8, 2016 has not yet bottomed. Further, should the decline be equivalent to the decline of 2008 the U.S. dollar would fall below 100 yen.

Below is a 10-year price-comparison chart for the S&P 500 and the Nikkei 225. At July 1, 2008 the charts for the Nikkei 225 and the S&P 500, which had been descending since May of 2008, diverged. The Nikkei 225 continued downward and the S&P went upward on July 1, 2008. The Nikkei continued on a downward spike trajectory until the index reached a base of support on October 1, 2008. The S&P 500 continued on its slightly upward trajectory until August 1, 2008. The S&P 500 than began a rapid descent, or spike, that resulted in its not finding its first base of support until November 1, 2008. Based on the 2008 charts, the Nikkei led the S&P 500 by a month during the crash of 2008. The chart also depicts the most recent divergence of the S&P 500 and Nikkei 225.

In Summary

Based on the one- and ten-year historical price-chart comparisons for the yen, the dollar, the Nikkei 225, and the S&P 500, probability is high that the S&P 500 will soon decline significantly. It is most probable that the extent of the initial decline will be determined from the point at which the U.S. dollar stabilizes versus the Japanese yen. My March 16, 2016 article entitled, "Ridding World of Negative Rates May Require Meltdown of Income-Producing Assets”, provides details about the potential mark down of the S&P 500 could likely be in stages. My interview “Why Negative Rates could send the S&P 500 to 925” provides the rationale for why the S&P 500 could decline to under 1000.

For those preferring to liquidate as soon as possible, instead of their having to monitor Dynasty Wealth’s “NIRP Crash Indicator” that is monitoring for the next market crash, my recommendation is that they employ a “black swan” investing strategy.  Nassim Nicholas Taleb devised the strategy of investing 90% of one’s liquid assets in government or sovereign debt securities and the remaining amount in extremely high-risk/high-return investments including venture capital and small cap and low priced stocks. The video below entitled “Markowski Visionary Analyst 5 of 5” provides details regarding sovereign debt being the only 100% safe solution that an investor can apply to protect their liquid assets from a market crash or economic calamity.

Taleb’s book (Taleb, N.N. 2007. The Black Swan: The Impact of the Highly Improbable. Random House) spent 36 weeks on The New York Times, Best Sellers list. In his book, Taleb, who had a distinguished career as a trader, contended that banks and trading firms are especially vulnerable to hazardous “Black Swan” events that expose their very defective models. (Please see CNBC interview with Taleb.) 

Taleb’s philosophy is both extremely simple and safe. Invest under the assumption that it is inevitable that there will be a “Black Swan” or one-off event(s) that will devastate a market. Should such an event occur, the result would be that the shares of the companies, even those in the S&P 500 — arguably the world’s highest quality stock index — would get clobbered. Thus, it is ludicrous for an investor to believe that they have little risk because they are fully diversified. Diversification does not protect an investor during periods of extreme volatility or against unforeseen mega-events. Taleb made huge profits from the crash of 1987, the bursting of the NASDAQ dot-com bubble in 2000, and from the crash of 2008.

The research philosophy of the Dynasty Wealth LLC, the “boutique” research firm that I founded perfectly positions an investor with the high-risk and high-return investment opportunities required to effectuate a “Black Swan” investing strategy. Dynasty Wealth evolved from research that I had conducted on the ongoing transformation from the industrial economy to the digital economy. My research findings enabled me to conclude that the period from 2015 through 2020 would be the best ever for investors to generate dynasty wealth returns of 10- to 100-times from utilizing a truly diversified portfolio. The video entitled, “Digital disruptor companies have the potential to get $10 billion valuations quickly”, below provides details about how investing into a portfolio of digital disruptors enable investors to create dynasty wealth. It discusses digital disruptor UBER. A $10,000 investment into UBER in 2010 was valued for $105 million in 2015.

My April 1, 2016 article entitled, “No April Fool’s Joke: NIRP Crash Indicator Elevated to Pre-Crash Warning”provides access to all of my March 2016 research reports and three video interviews covering negative interest rates:

• Video: Negative Rate Risks Parallel to 2008’s
• Video: Negative Rates Pose Risks to U.S. and all Global banks 
• Video: Michael Markowski, Founder, Dynasty Wealth sits down with SCN's Jane King

Additional videos are available explaining digital disruptor and first mover companies, whereby selectively investing in these market niches enables an investor to create dynasty wealth relatively quickly. (Please see http://www.dynastywealth.com/video.php.) In-depth information regarding my past and current predictions is available at www.michaelmarkowski.net.

My predictions are frequently ahead of the curve. The September 2007 predictions that appeared in my EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. For this reason I had to advise readers to get out a second time in my January 2008 column entitled “Brokerages and the Sub-Prime Crash”. My third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. For my article “The Carnage for Financials Isn’t Over” I reiterated that share prices for the two remaining public companies continued to be too high. By the end of November 2008 share prices of both Goldman and Morgan Stanley had fallen by an additional 60% and 70%, respectively — new all-time lows.