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Tue, 25th April 2017

Anirudh Sethi Report

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Latest Posts

Bob Prechter Warns Market Correction “Larger Than The Malaise Of The ’30s” Looms

I recently interviewed Prechter, who released a ground-breaking book, “The Socionomic Theory of Finance,” at the end of December. In the 813-page book, which took 13 years to write, he proposes a cohesive model that takes into account trends in sociology, psychology, politics, economics and finance. I highly recommend the book.

As I’ve explained here, Elliott Wave theory says public sentiment and mass psychology move in five waves within a primary trend, and three waves in a counter-trend. Once a five, or V, wave move (the waves are sometimes described in Roman numerals) in public sentiment is completed, it is time for the subconscious sentiment of the public to shift in the opposite direction, which is simply a natural cause of events in the human psyche, and not the operative effect from some form of “news.”

As one reviewer on Amazon wrote about Prechter’s new book: “This [cohesive] approach allows a measure of prediction on the basis that social mood fluctuates in fractal waves, and knowledge of them allows one ‘to achieve some measure of success in forecasting the direction, extremity and character of financial, social, political, cultural and economic trends.’ ”

Here’s an edited version of the interview, in which Prechter gives his outlook for the U.S. stock market, the general theory of Elliott Wave analysis and his new projects.

Avi Gilburt: You’ve said that, once the stock market tops, you expect a major bear market and economic contraction to take hold. What is your general timing for this to occur?

Macron, Le Pen Take Lead In French Presidential Election: Live Feed

The first results are in and according to IPSOS exit polls, Macron leads with 23.7% of the vote, Le Pen is second with 21.7%, with Fillon and Mellenchon tied for third at 19.5%. However, according to official results, from the French interior ministry, Le Pen is leading with 24.3% of the vote, Macron is at 21.4%, while Fillon has 20.3%.

Meanwhile, according to French official data:

  • LE PEN GETS 24.2% IN FRENCH INTERIOR MINISTRY PRELIMINARY COUNT
  • MACRON GETS 21.4% IN FRENCH INTERIOR MINISTRY PRELIMINARY

And an update:

  • LE PEN AT 24.9%, MACRON AT 21.1%: INTERIOR MINISTRY AT 8:13PM
  • FILLON AT 20%, MELENCHON AT 18%%: INTERIOR MINISTRY AT 8:13PM
  • FRENCH INTERIOR MINISTRY 8:13PM DATA BASED ON 5.25M VOTERS

Elsewhere, Benoit Hamon, the candidate for the incumbent Parti Socialiste of Francois Hollande, has just conceded defeat after a dismal showing of around 6%. He spoke to supporters and the press in a packed out hall and made an instantaneous endorsement for Emmanuel Macron.

  • HAMON SAYS ENDORSES MACRON TO BEAT LE PEN IN SECOND ROUND: BBG

Earlier:

While we urge taking early polls with a big grain of salt, according to a Harris poll, Macron is in the lead with 24.5% of the vote, follow by Melenchon and Le Pen in second place with 20% of the vote.

  •     Macron (EM-*): 24.5%
  •     Melenchon (FI-LEFT): 20%
  •     Le Pen (FN-ENF): 20%
  •     Fillon (LR-EPP): 18%

 

A Banquet without Consequences by Alex Schaefer

I wanted to paint a picture of how disgusting I feel our financial system has become, so this came out: A Banquet without Consequences. A bacchanal of financial terrorists indulging themselves in their largess. This feels like the zeitgeist: Sex Drugs and Warren Buffet on a ukulele; they are all bringing down the house. Oil on canvas, 48 by 44 inches –

Jaguar Land Rover cuts prices of two models by up to Rs 4.08 lakh in India

Tata Motors-owned Jaguar Land Rover (JLR) has slashed prices of its two models in India by up to Rs 4.08 lakh to take on German rivals.

The company has cut the price of diesel-powered Land Rover Discovery Sport by Rs 4.08 lakh to Rs 43.8 lakh from the earlier price of Rs 47.88 lakh (ex-showroom Delhi).

Besides, it has also reduced price of Range Rover Evoque diesel by Rs 3.25 lakh to Rs 45.85 lakh from Rs 49.10 lakh earlier.

“Land Rover cars are increasing in popularity and in order to expand the reach of this iconic brand, we have revised and re-positioned the prices of some of our products,” JLR India Managing Director Rohit Suri told PTI.

The move would help the company make its products competitive and thus enabling more customers to join the Land Rover family in India, he added.

The two vehicles compete with the likes of Audi Q3, Q5, Mercedes GLC, GLE and BMW’s X3.

JLR sells a range of models through 24 authorised outlets in the country.

US accuses TCS, Infosys of violating H-1B visa norms

Image result for infosys tcsThe US has accused top Indian IT firms TCS and Infosys of unfairly cornering the lion’s share of H-1B visas by putting extra tickets in the lottery system, which the Trump administration wants to replace with a more merit-based immigration policy. At a White House briefing last week, an official in the Trump administration said a small number of giant outsourcing firms flood the system with applications which naturally ups their chances of success in the lottery draw.

“You may know their names well, but like the top recipients of the H-1B visa are companies like Tata, Infosys, Cognizant — they will apply for a very large number of visas, more than they get, by putting extra tickets in the lottery raffle, if you will, and then they’ll get the lion’s share of visas,” the senior official said, according to transcript of the briefing posted on White House website.

Responding to a follow up on why Indian companies were singled out for a mention, the White House response said Tata Consultancy Services, Infosys and Cognizant were the top three recipients of H-1B visas. “And those three companies are companies that have an average wage for H-1B visas between USD 60,000 and USD 65,000 (a year). By contrast, the median Silicon Valley software engineer’s wage is probably around USD 150,000,” the official said.

China’s Credit Excess Is Unlike Anything The World Has Ever Seen

From a global macroeconomic perspective, we encourage readers to consider that the world is experiencing an extended, rolling process of deflating its credit excesses. It is now simply China’s turn.

For context, Japan started deflating their credit bubble in the early 1990s, and has now experienced more than 20 years of deflation and very little growth since. The US began its process in 2008, and after eight years has only recently been showing signs of sustainable recovery. The euro zone entered this process in 2011 and is still struggling six years onward. We believe China is now entering the early stages of this process.

Having said that, we believe that Chinese authorities have a viable plan for deflating their credit excess in an orderly fashion. Please stay posted as we will review this multi-pronged, market-based approach in our next column.

For now, let’s turn our attention to the size of the credit excess that China created and why we estimate it to be the largest in the world.

A credit excess is created by the speed and magnitude of credit that is created – if too much is created in too short a time period, excesses inevitably occur and non-performing loans (NPLs) emerge.

To illustrate the credit excess that has been created in China, let’s review several key indicators, including the: 1) flow of new credit; 2) stock of outstanding credit; 3) credit deviation ratio (i.e., excess credit); 4) incremental capital output ratio (efficiency of credit allocation).

The chart below shows the amount of credit created as a percentage of GDP during the five years prior to major downturns globally.

North Korea says ready to strike US aircraft carrier

North Korea said on Sunday it was ready to sink a U.S. aircraft carrier to demonstrate its military might, as two Japanese navy ships joined a U.S. carrier group for exercises in the western Pacific.

US President Donald Trump ordered the USS Carl Vinson carrier strike group to sail to waters off the Korean peninsula in response to rising tension over the North’s nuclear and missile tests, and its threats to attack the United States and its Asian allies.

The United States has not specified where the carrier strike group is as it approaches the area. U.S. Vice President Mike Pence said on Saturday it would arrive “within days” but gave no other details.

North Korea remained defiant.

“Our revolutionary forces are combat-ready to sink a US nuclear powered aircraft carrier with a single strike,” the Rodong Sinmun, the newspaper of the North’s ruling Workers’ Party, said in a commentary.

The paper likened the aircraft carrier to a “gross animal” and said a strike on it would be “an actual example to show our military’s force”.

The commentary was carried on page three of the newspaper, after a two-page feature about leader Kim Jong Un inspecting a pig farm.

North Korea will mark the 85th anniversary of the foundation of its Korean People’s Army on Tuesday.

It has in the past marked important anniversaries with tests of its weapons.

North Korea has conducted five nuclear tests, two of them last year, and is working to develop nuclear-tipped missiles that can reach the United States.

It has also carried out a series of ballistic missile tests in defiance of United Nations sanctions.

North Korea’s growing nuclear and missile threat is perhaps the most serious security challenge confronting Trump.

He has vowed to prevent the North from being able to hit the United States with a nuclear missile and has said all options are on the table, including a military strike.

Complete Guide To Sunday’s French Presidential Elections First Round

Ahead of Sunday’s first round of the French election, we have previously provided several perspectives on the political and economic outcomes, including a permutation matrix of all six possible outcomes in terms of “high” vs “low market risk” (from BofA), why the market may be too complacent about a Le Pen – Melenchon result (candidate approval variance is within the polling error), and that European stocks have completely failed to price in any adverse outcome (as DB observed yesterday).

So with markets now closed, and all bets off, if only for the next two days until the results emerge, here is a complete guide to the first round of the first elections, compiled based on research reports by Deutsche Bank and Citigroup.

Guide to the French elections first round, from Deutsche Bank and Citi

Summary:

  • The first round of the French Presidential elections will be held on Sunday 23rd April.
  • Most polling stations will close at 7pm local time but some will remain open until 8pm local time. The first exit polls should be published at 8pm but may have to be taken cautiously. By midnight local time we could expect to have a clear picture of who would make it to the second round.
  • Since publication of our initial comprehensive piece on the French elections, the polls for the four major candidates have narrowed considerably and Mélenchon has replaced Hamon on the left wing. The narrowing of the polls and the historical error in actual voting relative to polls makes any of the six outcomes involving the four major candidates possible.
  • In order of decreasing likelihood the potential outcomes are (1) Macron vs. Le Pen (2) Le Pen vs. Fillon (3) Macron vs. Mélenchon (4) Le Pen vs. Mélenchon (5) Macron vs. Fillon and (6) Mélenchon vs. Fillon.
  • Based on current polls, in our baseline scenario of Macron vs. Le Pen in the second, Macron is expected to win comfortably. Le Pen would have to win the first round with a gap of 5pp or more and/or the participation rate in the second round to fall below 60% for her chances to improve significantly.
  • We assess the expect market impact on bond markets based on expected yield and spread levels for a presidential win for the four candidates and indicative probabilities of a win for the candidates in the second round conditional on the outcome of the first round.
  • Macron is favoured to win against all candidates if he makes it to the second round. Based on current polls market concerns about French elections should recede considerably in any outcome with Macron in the second round.
  • OAT-Bund spreads have the greatest room to widen in case of a Mélenchon vs. Le Pen outcome, while it has the most room to tighten in case of a Macron vs. Fillon outcome. However, in the latter scenario the tightening in OAT-Bund spreads should be more than offset by the rise in Bund yields leaving OAT yields broadly unchanged.