Paris attacks highlight need to end the folly of a borderless Europe

Wolfgang Münchau

 

©AFP

Policemen check the identity of motorists at the French-Belgium border in Neuville-en-Ferrain

 

 

One of the inevitable consequences of the Paris terrorist attacks is that France will need to spend more on security, especially on intelligence. So will most member states of the Schengen area.

 

Schengen is the name for the passport-free travel zone made up of 26 European countries, including 22 EU states. Last week it became clear the security network that supposedly operates quietly and efficiently in the background of Schengen is not working. The death of Abdelhamid Abaaoud during a police raid on the Paris suburb of Saint-Denis was at one level a big success. The police got the suspected terrorist who co-ordinated this and other attacks. On another level his death was also a nasty shock. What does it say about Schengen if one of the world’s most wanted criminals was able to move freely between Syria, France and Belgium?

 

That was not supposed to be possible.

There are, in principle, two fixes. Repair Schengen; or revert to national systems. Both work. The first would be economically efficient but is politically hard to do. The second is politically easier to do, but would constitute a spending shock of macroeconomic scale for many countries.

 

The repair of Schengen would have to go beyond the unambitious agenda of justice and interior ministers, who met last Friday to consider a few practical proposals. The problem with Schengen is that within a few weeks it has lost its biggest asset — the trust of the population.

 

President François Hollande clearly did not trust the system. Why else has he reimposed border controls?

 

For Schengen to regain trust, the control of the common external border would have to be of the standard of the very best of the member states, not at some fudged EU average level. The EU runs an agency, Frontex, based in Warsaw, tasked with co-ordinating policy and maintaining standards. But crucially, in the Schengen area every country is responsible for maintaining its own external border controls. The external border of Greece, for example, is also part of the Schengen area’s common external borders as well.

Frontex does not have the resources even to do its limited job properly, let alone to act as a federal-level border control unit, which is what is really needed. America has the US Citizenship and Immigration Services, which are part of the Department of Homeland Security, and the US Coast Guard, which is a branch of the armed forces. In Europe, we rely on civil servants passing information to each other. Or not — as it turned out.

The EU will tinker with Schengen, but not fix it. Sound familiar? When the eurozone crisis started, a few bold measures would have fixed it. But there was no political majority for a federal-level solution to the banking and sovereign debt crises. Why would EU leaders do the right thing for Schengen, when they failed to do it for the eurozone?

The alternative would be to allow Schengen to wither away, to revert to national systems, and implement the necessary changes at home. This is what I expect will happen. It is not a bad option. It will work because member states have their base infrastructure still in place. It is, of course, terribly inefficient for 26 countries to operate their own intelligence networks, and to police their internal borders. The length of the borders around France and Germany alone is about 3,000km each. The external land border of the whole Schengen area is only 8,800km. If Humpty-Dumpty falls apart, there will be lot of bits and pieces, and lots of protruding edges. The internal borders would return.

Before the attacks, they were almost invisible. On the train from Brussels to Paris, you would be hard pressed to notice when you changed countries. On the motorway, a derelict frontier post would have reminded you that there was once a border, followed by a country sign encircled by the twelve EU stars. Schengen turned the Molenbeek district of Brussels and Saint Denis in northern Paris into adjacent neighbourhoods. The terrorists led the life of commuters, living in Brussels and working in Paris.

Since we are not going to fix Schengen, let us return to national border controls. It will be very expensive, especially for France, which has yet to build up a fully functional domestic security service.

It will be of an order of magnitude to derail any budget plan and will rouse the ire of eurozone bean counters. France should invoke, unilaterally if need be, the clause of an exceptional circumstance under European budget rules.

The overriding goal has to be to preserve one of the most important common goods the EU can provide to its citizens: a modern and professional level of internal security. Schengen cannot deliver this. But the member states still can, and should be allowed to do this.

Barclays bets on stock boom as world money growth soars

Commodities and emerging markets may have hit bottom. Fed rate rises mean leadership is switching to "anti-bond" sectors

By Ambrose Evans-Pritchard

The first rate rises by the US Federal Reserve are usually good for stocks Photo: AP Photo/Andrew Harnik

 

 

Barclays has advised clients to jump into world stock markets with both feet, citing the fastest growth in the global money supply in over thirty years and an accelerating recovery in China.

 

Ian Scott, the bank’s global equity strategist, said the sheer force of liquidity will overwhelm the first interest rate rises by the US Federal Reserve, expected to kick off next month.
 

Global equities rose by an average 15pc over the six months after the last three US tightening cycles began, on average, and Barclays argues that this time stocks are cheaper.
 

The cyclically-adjusted price to earnings ratio (CAPE) for the world’s equity markets is currently 18, compared to 25.5 at the beginning of the last rate rise episode in 2004.

 

This is roughly 14pc below the CAPE average since 1980, though critics say earnings have been artificially inflated by companies borrowing a rock-bottom rates to buy back their own stock.

Mr Scott said the growth of global M1 money – essentially cash and checking accounts – has surged to 11pc in real terms, led by China and the eurozone. This is higher than during the dotcom boom and the pre-Lehman BRICS boom.

It is likely to ignite a powerful rally in equities nine months later if past patterns are repeated, although the lags can be erratic, and the M1 data gave false signals in the mid 1990s.


 
Barclays said American stocks are trading at a 30pc premium to the rest of the world. This gap is likely to close as emerging markets - "the epicentre of negative sentiment" - come back from the dead. The pattern of foreign fund flows into the reviled sector has triggered a contrarian buy-signal.

Everything hinges on China where real M1 money has ignited after languishing for over a year.

Floor space sold is growing at 20pc and house prices have stabilized.

Simon Ward from Henderson Global Investors says real M1 is now surging in China at the fastest rate since the post-Lehman credit blitz, though money data is cooling in the US
Chinese fiscal spending has jumped by 36pc from a year ago and bond issuance by local governments has taken off, drawing a line under the recession earlier this year. "A growth revival is under way and will gather strength into the first half of 2016," he said.


 
Barclays is not alone in calling the bottom in emerging markets. Amundi Asset Management is cautiously buying, based on a 'soft-landing' hypothesis for China.

Kamakshya Trivedi from Goldman Sachs is also nibbling, though the bank remains bearish on China and has ditched its infamous `BRICS' fund to focus on a more coherent concept.

Mr Trivedi said there is no going back to the "roaring 2000s" but the worst may be over after three years of dire returns. “2016 could be the year emerging market assets start to find their feet," he said.

Capital Economics has been caustic about the BRICS for several years but said the hard data at last point to a tentative rebound for the emerging market nexus as a whole. "All told, there doesn’t seem to have been much justification for the alarmist talk that gripped the markets in the summer," said William Jackson, the group's senior emerging market economist.

Sceptics abound. Nobody knows for sure what will happen to the most indebted countries if the Fed embarks on a serious tightening cycle. Dollar debts in emerging markets have jumped to $3 trillion, and much higher under some estimates.

Private credit in all currencies has risen from $4 trillion to $18 trillion in a decade in these countries. Research by the Bank for International Settlements suggests that rate rises by the Fed ineluctably lifts borrowing costs everywhere.

Barclays said the US rate rise cycle is a tonic for global financial companies. It has raised its weighting for banks, insurance companies, and other finance stocks to 31.9pc.
 
“We think global banks are severely under-priced,” said Mr Scott. He likes AXA, Banco Popular, Citigroup, JP Morgan, Lloyds Banking, ICBC, MetLife, Intesa San Paulo, among others.

Bonds are likely to suffer if global recovery builds and fears of 'secular stagnation' give way to an incipient reflationary cycle.



The bank said the worst sectors at this phase of the cycle are real estate and utilities.
 
Materials and commodities may instead make a come back. These are what it calls the "anti-bond" equities. They are trading at a near record 34pc discount to "bond-proxy" sectors.

Materials and commodities may make a come back. Barclays is heavily overweight energy - at 11.9pc against the benchmark 6.8pc - backing Shell, Marathon, Total, Conoco, Suncor, and Valero Energy, as well as the fertilizer group Agrium.

Mr Scott said "value stocks" - underpriced relative to fundamentals - are about to come into their own again. These are trading at the cheapest level relative to "growth stocks" since the dotcom bubble, based on the CAPE measure.

Barclays is betting that the 12pc rout on global stock markets this summer was a false alarm - or a pause to catch breath - along the lines of the Asian financial crisis in 1998. The blast of stimulus that followed in 1998 drove a two-year boom in global equities before the cycle ended.

The bank may be wrong but there are no signs of the complacency and wild 'animal spirits' that typically mark a speculative top. The bull/bear ratio tracked by Investor's Intelligence is far below previous late-cycle peaks.

As long as markets are climbing the proverbial wall of worry, investors can take comfort. Pessimism is a fund-manager's best friend.

Rational Monster

How Terror Fits into Islamic State's Plan

By Christoph Reuter

Winning, but Losing, at the Penny-Pitch: A Look at the Coming Collapse of the European Unión

by Jeff Thomas
.

The Fed’s Dollar Distraction

Gita Gopinath
.

Is Anybody Okay Out There?

By: John Rubino

In normal times, the world's major economies are a mixed bag. Some are up, some are down, some are placid, some are in crisis. It's only at the boom/bust extremes that everyone finds themselves in more-or-less the same boat.

This is looking like one of those times -- and the boat is sinking. Japan, for instance, is back in recession...



...while its debt continues to soar.



Brazil's economy has been shirking since April, and the decline is accelerating. See Brazil in free-fall mode. Get ready for terrible Q3 print, analysts warn.

Europe is descending into a combination of financial and geopolitical chaos that might dissolve not just the eurozone but major parts of the European Union, notably the free movement of people across internal borders. See Europe is sliding towards the abyss and the terrorists know it.

China pretends that it's still growing, but no one believes it anymore in light of things like this: China's Steel Industry Peers Into Abyss as Output to Plunge.

The Middle East civil war has now sucked France and China in alongside the US and Russia.

See Beijing vows justice as ISIS kills Chinese, Norwegian hostages.

Even the US, which most of the world seems to consider an island of stability, has soaring debt and a slowing economy. See Housing starts just plunged to 7-month low and Retail reality: another sign a recession and crash are imminent.

The lone bright spot is financial asset prices -- but market breadth has deteriorated alarmingly.

Most stocks are flat to down (in some cases down hard) while the broad indexes are supported by just a handful of rising issues. See Nifty-Fifty becomes Fab-Five.

So why is the whole world simultaneously in financial/geopolitical crisis? 

Because the whole world has been making the same set of mistakes. Armed with unlimited monetary printing presses, most major countries have been operating with the sense of omnipotence that flows naturally from the ability to create money out of thin air. The US built a global military empire with borrowed money and proceeded to bully the rest of the world almost randomly, destabilizing the Middle East and stirring up resentment everywhere else.

Europe adopted a fatally-flawed common currency on the assumption that it would paper over the resulting crises with new credit. China thought it could build roads, airports and entire new cities with borrowed money, and that all of those assets would magically generate copious free cash flow. And Japan has avoided making the structural changes necessary to deal with an aging population, simply borrowing and printing the yen needed to get through each budget cycle.

In other words, for quite a while everyone was able to ignore the bit of common sense that says "when you find yourself in a hole, the first thing to do is stop digging." Instead they assumed that they could dig forever because their "modern money" would always be there to bail them out.

Now here's where it gets really interesting. The debate has shifted to whether current policy has failed because it's based on false assumptions and flawed models -- or because it wasn't pursued with enough enthusiasm. Since no one likes to accept blame or give up power, the folks in charge will almost certainly choose the latter explanation and give it one more go in 2016, bigger and better, shock and awe, NIRP, war on cash, QE for the people.

Toss those things into the current mix and you've got a year for the history books.

Fifa: The fall of the house of Blatter

The inside story on the moves being made by football’s governing body to survive amid US and Swiss corruption investigations

 

©Reuters

 

The “Home of Fifa” is an oblong building on a hill above Zurich. Wrapped in strips of grey netting it appears impenetrable, and for decades it seemed as if that was the way football’s governing body liked it. Fifa has always been a secretive club, accountable only to itself.

 

But in May its world fell apart. Criminal investigations into corruption in both Switzerland and the US triggered an internal battle — still being played out — over how the organisation is run.

 

The fight, in which Fifa president Sepp Blatter and his allies have been largely sidelined, has left control of the organisation in the hands of Fifa’s legal director and a US law firm hired to restore Fifa’s reputation and ensure its survival — even as fresh evidence of a cover-up of corruption at the top is unearthed.

 

Fifa is facing an existential threat. Its revenues have been hit by the scandal, as new partners shy away, and there will be cost-cutting ahead. But inside the organisation many of those hoping to replace Mr Blatter when Fifa elects a new president in February remain in denial about the need for change, according to people close to the organisation.

“It is not a forgone conclusion that the company [Fifa] will survive,” says a senior person close to the body. “It is up in the air.”

This account of the past few months inside the headquarters of world football is based on interviews with Fifa officials and others with first-hand knowledge of the last days of the Blatter reign. Most asked for anonymity due to the sensitivity of the situation.

Early morning wake-up

Mr Blatter was having his morning coffee when he learnt that Swiss police, acting on a request from the US Department of Justice, had swooped on the Baur au Lac hotel and arrested seven senior Fifa officials. It was 6am on Wednesday, May 27, and Marco Villiger, Fifa’s legal director, called Thomas Werlen to ask for help.

 

For six years, Mr Werlen was the general counsel to Novartis, the Swiss pharmaceuticals group, as it battled accusations from the DoJ that it illegally marketed a number of drugs and paid doctors to prescribe them. It eventually paid $422.5m to resolve criminal and civil liability in 2010. Two years later Mr Werlen became a Zurich-based partner at Quinn Emanuel, the US law firm which had begun advising Fifa in 2014.

 

Mr Villiger, who has worked at Fifa for nine years, also contacted Bill Burck, a one-time special counsel to George W Bush in Washington who is now a Quinn Emanuel partner. Today Mr Burck, who is also a former assistant US attorney in New York, acts as one of the main conduits between Fifa and the DoJ.

After Swiss police swept through the hotel, investigators from the public prosecutor’s office arrived at Fifa headquarters to begin their own probe.

 

In the aftermath, there was confusion about how to respond to the crisis. Senior Fifa figures, outraged at the timing of the raids — just two days ahead of a presidential election — accused the US of overstepping its authority.

“There were many different responses within Fifa,” says one person who has spent considerable time inside the Zurich headquarters over the past few months. “At the worker level there was real shock and fear and confusion but also a sense of: ‘What can we do about it to make it better?’ At the political level, it was very different. There was a defiance and lack of appreciation for the severity of the situation,” he says. 
 
Even now, a number of Fifa’s leaders still “think this will go away”, says a person familiar with Fifa’s 25-strong executive committee, the cabinet that makes all major decisions. “Most of the executive committee are in denial. Only a small group understands,” he says.

Nevertheless, the pressure was enough to force Mr Blatter into an about-turn. Just days after he had been re-elected for a fifth term as president despite calls for him to quit, Mr Blatter said he would stand down after a fresh election.

Several people say the U-turn was triggered by warnings that he could become a target of the US investigators if he stayed on. “That is not true at all,” Mr Blatter told the FT in a recent interview. “I took personal advice not legal advice, from people I trust.” Among those he met was Mr Villiger, who explained Fifa’s legal position. After that, Mr Blatter says, he chose to go “to protect Fifa”.
 

The US indictments could destroy Fifa. The DoJ — which opened its investigations at least four years ago — is prosecuting Fifa officials under the Racketeer Influenced and Corrupt Organisations Act, legislation drawn up to target mafia syndicates that had taken over otherwise lawful organisations. The DoJ is currently gathering more evidence and some of the arrested Fifa officials have agreed to co-operate with the inquiry. More arrests are expected in the next six months.

 

If the DoJ charges Fifa with racketeering, its sponsors and broadcast partners would immediately have to cut their links and world football’s governing body — which had revenues of $5.7bn in the four years before the 2014 World Cup — would disintegrate.

But there is wiggle-room built into the indictments. Fifa is also named as a “victim” of the alleged crimes, both in the US and Switzerland. In the US, courts have sent Fifa four “victim notices” so far — automatic notifications from the court to the injured parties in upcoming cases.

“You can either be an entity set up to commit crimes, or you can be an organisation which has been used by individuals to commit crimes,” says a person familiar with Fifa’s legal woes.

 

Victimhood

 

Since the break-up of Arthur Andersen, the accounting firm, in the wake of the Enron scandal, US prosecutors have been reluctant to chase companies into the ground, in order not to destroy the livelihoods of innocent workers, even if the organisation’s leaders are at fault.
 
But the Brooklyn-based US prosecutors looking at Fifa are not white-collar crime specialists; they deal in organised crime. “They probably would have charged Fifa as a mafia enterprise and that would have ended it. But someone high up at the DoJ might have recognised that would cause a problem. The victim status is an interim solution,” he says.

The key to maintaining “victim status”, according to the person close to Fifa, is to act like a victim. “What does a victim do? Someone who is a victim wants to find out what happened and get justice. Someone who is not really a victim looks the other way.”

From the outside, Fifa did not look like a victim. Instead, its leaders were denying any significant wrongdoing.

Fifa’s communications department was in meltdown. Quinn Emanuel hired Teneo, a strategic communications firm that had advised BHP Billiton, Novartis and UBS on their battles with US prosecutors to work with it on the Fifa case. The brief was to make the governing body appear transparent, less political and more co-operative says one person close to the organisation.

 

But not everyone bought into the strategy. On July 20, Quinn Emanuel gave a presentation to the executive committee outlining how Fifa needed to present itself as a victim.

“There was understanding. There were some nodding heads,” says a person present. “Then Blatter’s reaction was: ‘We have nothing to worry about, we are victims.’” Two other people present said it was not their impression that Blatter was trying to belittle lawyers’ advice

The tension grew over the summer, with the Fifa leadership lining up against Quinn Emanuel — which has devoted a team of around 10 lawyers to the case — and the legal department.

To the frustration of many, Mr Blatter continued to publicly condemn the US investigation as politically motivated.

“Everyone told Blatter respectfully and repeatedly not to make public comments denigrating the investigation. He was asked to focus on football,” says one of his advisers.
 
Even Lorenz Erni, Mr Blatter’s Swiss lawyer, asked him to stop speaking. But others advised him to get his message out. One of his close circle says Swiss banks were advised to “shut up” when they were in dispute with the US but that did not achieve much for them in the end: “I thought he should tell his story.”

Pressure continued to mount. Jérôme Valcke, Fifa’s general secretary who was considering a bid for president, was suspended after being implicated in a World Cup ticket scandal. In August, Fifa’s sponsors arrived in Zurich for talks. “They said they were supportive of the plans, but why was no one controlling the president,” says one person present. “And they wanted to know how long the investigations would last.” They were told that Fifa’s problems with the DoJ would last for another year. Swiss officials believe their investigation will take five to six years.

 

In October, Coca-Cola, McDonald’s, AB InBev and Visa called for Mr Blatter to immediately resign. He was forced out six days later, bringing to an end a 17-year reign, when Swiss prosecutors said they were investigating him over a Sfr2m ($2m) payment to Michel Platini, the head of European football.

 

“No one laid any bear traps, but when the situation arose, they made sure the right thing was done,” says a person close to Fifa. Mr Blatter’s friends blame Quinn Emanuel and Teneo.

“They have Fifa under control. No decisions are taken without their OK,” says one. Mr Blatter puts it more bluntly: “Quinn Emanuel is in charge of Fifa,” he says.

His office, a 1,500 sq ft suite, has been cleared of his personal items, the pictures and souvenirs from around the world. Last Wednesday, his appeal against his suspension from all footballing activities was rejected. Since his departure, he has had a lengthy spell in hospital after suffering a “total failure of everything apart from his heart and brain”, says a spokesman.

Fresh investigations

In July, Quinn Emanuel created an off-site data room to conduct its own investigation into Fifa. After sifting through thousands of emails, several more examples of suspected corruption — and apparent efforts to cover them up — were unearthed and forwarded to the Swiss authorities, according to people with knowledge of the investigation.

“The evidence has opened new channels of investigation,” says one person close to Fifa. “A lot of it has been actively concealed. In the past four years there are no examples of open and notorious stuff but of senior people concealing their activities.”
 
But the DoJ has grown impatient with apparent foot dragging by Swiss authorities. “They want to see results,” says the person. The Swiss criminal code prevents foreign authorities operating within Switzerland without consent and the Fifa case has highlighted a transatlantic clash of legal cultures.
 
Folco Galli, a spokesman for the Swiss justice ministry, says there is a treaty with the US that allows for “legal assistance” but admits: “We have not yet provided the evidence that the US authorities are asking for. It will take time.”

Fifa’s administration, led by Markus Kattner, the acting secretary-general, is planning for a less rosy future. The executive committee met last month, when Mr Kattner gave a presentation on Fifa’s revenues and costs and how the crisis was affecting the organisation.

“The shortfall this year means costs need to be trimmed,” says a person at the briefing. “No one has been signing up sponsors.”
 
The most important reform, stripping the committee of its executive powers and giving operational control of Fifa to an appointed chief executive, is also winning support. “The reforms will go through even if [member] countries do not want them, otherwise they will be hit in the pocket. They need the reforms to get the revenues they want because otherwise the sponsors will leave,” he adds. Others close to Fifa are studying the creation of a “bad bank” structure, where Fifa’s historic operations are left behind to co-operate with the DoJ while the organisation forms a new arm to move into the future.

“You want the body in charge of world football to survive and carry on without living in a constant state of crisis,” says one person familiar with the talks.
 
What is clear is that Fifa’s low, grey, oblong headquarters will have to become more transparent to survive, whether its leaders want it to or not.

How it unfolded

May 2013  Former Fifa executive committee member Chuck Blazer (above) is arrested in the US on bribery charges and begins to co-operate with an investigation into football’s governing body May 27  2015 Police raid Swiss hotel and arrest seven Fifa officials. Fifa legal director Marco Villiger (above) calls in US law firm Quinn Emanuel May 28  A $10m payment from South Africa to Fifa’s Caribbean federation — ahead of the 2010 World Cup — is revealed May 29  Sepp Blatter is re-elected president June 2  Fifa denies any knowledge of the payment from South Africa. But two hours later, a letter sent to Jérôme Valcke, Fifa’s general secretary, emerges. Blatter says he will resign Mid-June  Quinn Emanuel hires PR company Teneo to work with Fifa July 20  Quinn Emanuel briefs Fifa’s executive committee on legal strategy August 20  AB InBev, Adidas, Coca-Cola, McDonald’s and Visa meet Fifa executives in Zurich September 17  Valcke (below) is suspended following allegations of a ticket scam. He denies any wrongdoing September 25  Swiss prosecutors place Blatter under criminal investigation October 3  Sponsors call for Blatter to resign immediately October 8  Fifa’s ethics committee suspends Blatter Uefa president Michel Platini (below) and Valcke October 20  Markus Kattner, acting general secretary, tells Fifa executive committee that cost-cutting is inevitable

Why Japan Keeps Falling Into Recession

Japan’s weak potential growth points to the country’s continued vulnerability to downturns

By Aaron Back

Japan is once again in recession. The situation isn’t dire, but weak corporate investment is an important warning sign that investors should heed.

Japanese gross domestic product fell by an annualized 0.8% from a year earlier in the September quarter, the second straight decline. This may overstate the extent of weakness, as it was dragged down by a big drawdown in inventories. Japanese companies may soon have to step up production to rebuild those stocks, setting the stage for a rebound.

However, the data highlight how vulnerable Japan remains to downturns. Its long-term potential growth rate, which economists estimate is only around 0.5%, means that the economy is basically always on the verge of a recession. That Japan’s working-age population is shrinking by around 1% a year is a powerful drag.

Weak potential growth explains why corporations are hesitant to invest in the future. One of the weakest readings in the third quarter data was private, nonresidential investment, which mainly reflects capex spending by businesses. This fell 1.3% from the previous quarter, or an annualized 5.0%.

Unless companies believe that the long-term outlook is getting better, they will continue to hoard cash rather than spend on new factories and the like.

Raising the potential growth rate is therefore the most crucial task for Prime Minister Shinzo Abe. There are really only two ways to do this: increase the size of the workforce or raise the average productivity per worker.

Japan shows little sign of allowing more immigration, the easiest way to grow the workforce. Mr. Abe does deserve credit for pushing hard to get more women working. Japan now has a higher percentage of working-age women employed than the U.S. or Europe. But many of these women are in part-time jobs with less potential for advancement.

Boosting productivity is even harder. Again, Mr. Abe gets credit for pushing the Trans-Pacific Partnership free trade pact, which will aid productivity by opening up sclerotic domestic sectors to new competition. Also needed are reforms to make the labor market more flexible so workers can shift to industries or jobs in which their skills are most needed.

If growth keeps disappointing, the Bank of Japan 8301 -1.24 % will continue to feel pressure to ease policy further. The BOJ’s official forecast, that GDP will rise by 1.2% in the fiscal year to March, already looks unobtainable.

But the BOJ has also long argued that it can’t do the job itself, and it needs the government’s help with structural reforms. With Japan in its second recession in two years, investors should hope that Mr. Abe gets the message.

Gold And Silver - Value Of Knowing The Trend

By: Michael Noonan

2014 and 2015 were viewed as turnaround years for gold and silver, with expectations that price would rally to new, never before seen prices. In a little over a month, 2015 ends and 2016 begins right after. It is possible that 2016 may bring more of the same: disappointing expectations for PMs performance. It is just a possibility, for no one knows for certain how the future will unfold. What we do know for certain is that in order for PMs to rally, they must first stop going down.

We have been telling readers to avoid the long side in futures for the past few years. We are also on record for advocating the purchase of physical gold and silver at any price, and all purchases made in the past few years are likely in the red. While true, that is not the issue in owning the physical for the reasoning is totally different. Physical ownership is more a form of insurance against the failure of the fiat Federal Reserve Note, aka the "dollar."

Reference was made to holding physical gold and silver as a form of wealth preservation. Some, perhaps even many may think their wealth is not being preserved very well for those purchases made since the PM peak, 5 years ago. This is true, in absolute terms when using a fiat currency as one's measure. It is a testament to the ability of the globalists to keep a price lid on both gold sand silver, mainly through the US central bankers. Few believed the financial Ponzi scheme could be stretched as much as it has.

What we all have learned is to realize the importance of a fiat trend, as well as a market trend.

When the fiat trend ends, the doors may close for the ability of one to buy more physical gold and silver, and the purchases made, even currently showing a loss in value, will be a saving grace after a temporary price disadvantage. Do not be discouraged and continue to buy more as one can.

All fiats fail, and the only difference this time around is the grossly exaggerated extent to which fiat has managed to survive. It also indicates that once the fiat "dollar" fails, and there are more and more cracks showing up in its ability to maintain its world reserve currency status, the move for physical gold and silver will also be favorably exaggerated to the upside.

The fiat "dollar" chart does not show any ending action to the upside. The last two TDs [Trading Days], were narrow ranges: buyers were unable to extend higher, but at the same time, sellers were unable to take advantage so buyers continue to prevail and price should eventually carry higher. The only thing that can alter this assessment is if sellers suddenly show up in force. They have not yet, so mention is made only to recognize the possibility.



The only purpose for including the weekly copper chart is to show how once a trend is established, it carries the prevalent momentum until the opposing force[s] become strong enough to effect a change.

If that does not happen, you can see price will keep falling, more than most expected, and will continue to fall until it uncovers demand. Unless demand shows up soon, $2 copper is possible for as long as the trend remains down.



Gold's decline is more controlled, no pun intended, as the lower lows do not go as deep as prior swing lows, which means the downside is just slowly giving way, but still going lower. This remains a function of price seeking demand, and until it shows up, just like in copper, price will continue to make lower lows.

The first two of the last four TDs were sharp declines, the last two on much smaller bars but volume increased. This would be an indication that buyers were more than able to match the increased selling effort sufficiently to prevent price from extending lower. More than likely the buying is short-covering and not new buyers. If true and the next rally is weak, without new buying for support, price will decline still more.

Because we know the trend is down, there is no guesswork about trading from the long side in paper gold. There is no need to "predict" the price direction. Just wait for more information that buyers are beginning to increase [which they are not, so far], and then have a strategy for buying in a changing up trend. Presently, there is no evidence of a change to an up trend, so wait for confirmation and keep one's powder dry.



The EDM reflects how buyers cannot control selling. While price started to trade almost sideways, near the current lows, you can see, relative to the $120 decline from the last swing high, there has been no ability to mount a counter-rally, and that is a sign of weakness.

Any change always shows up first on the smaller time frames. Yet, even the intra day 60 minute chart shows no sign of ending the current decline. Read all you want about the bullish fundamental climate for gold and silver, the reality is market participants are ignoring the current news and dealing with where price is and is headed. This is why charts are always more reflective of what is going on, at all times.



Just like there was no ability to rally from the lows in daily gold, weekly silver is in a similar position. Last week's tiny range is hard to read: price could neither rally nor decline, a stalemate. The trend is down, and the onus for change is with the buyers.

Until buyers make their presence known, expect more of the same.



The rally in early October was on wider range bars and sharply increased volume. It shows where buyers stepped in and made a difference. Typically, buyers will defend those prices, anywhere from the top of the first wide range bar to the bottom of it. That potential support was totally ignored as price declined over the last several TDs, and that says weakness.

Relative to the decline that started in late October, at a bull trap failed probe higher, once at the bottom of the current decline, there has been no ability to counter-rally. All of these observations are nothing more than reading developing market activity. They are simple and factual messages the market is conveying. These messages clear the fog formed from sentimental beliefs.

Jettison the beliefs and stay with what the market says. Trading life becomes easier.