Bankers divide the population into two categories: “banked” and “unbanked.” They seek to bank all humanity, because these days, to be unbanked is considered the financial equivalent of homelessness.

The grammar is revealing here. “Bank” isn’t a noun referring to that institution with impressive columns that holds your money. No, bank is a verb because it is an action done to you, not something that exists for you.

While some banks are run by honest folk, others are almost indistinguishable from criminal organizations.

Still, those “banksters” may be one of the best investment opportunities of your life.

Scandals Upstream

Bank scandals are nothing new in the US and elsewhere. Here are just a few examples from the last decade:

Wells Fargo (WFC) and its fake-account scandal

On September 8, 2016, Wells Fargo announced that it would pay fines of $185 million to federal and Los Angeles city regulators amid allegations that its employees had created millions of fake bank accounts for its customers.

I said when the story first emerged, “There’s never just one cockroach.”

Sure enough, the scandal dragged on for over a year. In August 2017, CNN reported that Wells Fargo “has found a total of up to 3.5 million potentially fake bank and credit card accounts, up from its earlier tally of approximately 2.1 million.”

On top of that, the bank also found over 500,000 unauthorized online bill pay enrollments.

Photo: Getty Images

The LIBOR scandal

The news first broke in 2012. LIBOR is the London Interbank Offered Rate, which determines how much individuals and corporations worldwide receive for their savings or pay for their loans.

It was revealed that bankers at 300-year-old British bank Barclays manipulated LIBOR to their own advantage. But the rabbit hole went much deeper. In the end, Barclay’s (BCS), Citigroup (C), Deutsche Bank (DB), JPMorgan Chase (JPM) and UBS Group (UBS) collectively paid $9 billion in fines for LIBOR misconduct.

Under US labor regulations, that settlement should also have barred those banks from managing anyone’s retirement savings.

But no. In December 2016, the outgoing Obama administration gave those five banks a one-year exemption from the rule.

Then in December 2017, the Trump administration extended the Obama exemption for three more years.

Surprised? Don’t be. Letting the megabanks slide is a bipartisan tradition in Washington.

Last year, by the way, the UK Financial Conduct Authority decided to phase out LIBOR in 2021, apparently because even with recent reforms, banksters can’t keep their hands out of the cookie jar.

Here’s another example that’s even worse.

FX market manipulation

In 2015, some of the usual suspects—Barclay’s (BCS), Citicorp (C), JPMorgan Chase (JPM), Royal Bank of Scotland (RBS), and UBS Group (UBS)—were accused of manipulating foreign currency prices in a closed online chat room that they jokingly called “The Cartel” or “The Mafia.” All of them pled guilty to the felony charges.

Photo: Getty Images

Those banks are now convicted felons, but all they ever seem to receive is a slap on the wrist.

Theoretically, Securities and Exchange Commission (SEC) regulations forbid convicted felon companies from underwriting public securities offerings.

Underwriting is a big part of their business, so being barred from it would be pretty severe punishment. Which is kind of the idea: Criminal punishment should be severe, so it deters repeat crimes and protects the public from being victimized again.

But not for banks.

Even though these banksters pled guilty to all of the charges, the SEC exempted them from the rules so they could continue underwriting. (One commissioner wrote a blistering dissent you can read here.)

Why even have a rule if we won’t use it?

Kicking Out Small Fry

We keep letting banks get away with risky or even fraudulent behavior, and they keep taking more risks and committing more fraud. This probably won’t end well.

Worse, the handful of banks that take most of the risk are pushing out all the others. Politico reported on January 8 that a top bank lobbying group had made a radical change.

The nation’s biggest banks are shaking up one of their trade associations in a bid to maximize their lobbying clout as Congress and regulators prepare to deal with crucial issues affecting the industry.

The board of the Financial Services Roundtable voted just before Christmas to pare down its membership only to banks with more than $25 billion in assets and to payments companies like MasterCard and Visa. The move decreases its membership from more than 80 to roughly 43, eliminating insurers, asset managers and other nonbanks.

The megabanks think their lobbying interests are no longer compatible with those of smaller banks and others. So they’ve kicked the small fry out of their club.

It’s nothing personal, of course. They just prefer their own kind.

Photo: Getty Images

Amazing Bargains

These few dozen top banks now represent most of their industry. All were either part of, or grew out of, the 2008–2009 financial crisis.

If you recall, the Federal Reserve, Congress, and Presidents Bush and Obama decided the banks were “too big to fail” and letting them collapse would wreck the economy. They employed various bailout programs paid for by our taxes to save the banks.

(Except Lehman Brothers, of course. I’ve still not seen a convincing explanation of why it was different.)

Anyway, bank stocks plunged to ridiculous lows during the crisis, before bouncing back once rescued. Now, less than a decade later, they’re back at ridiculous highs. Some look a little shaky because interest rates are rising and loan growth still low, but as a group, they are still handsomely profitable.

Better yet, regulators are afraid to take any steps that might make these banks smaller or less profitable. I had hopes this would change under the Trump administration, but it hasn’t.

History rarely repeats itself, but this may be an exception.

At some point, we will have another financial crisis, the banks will wobble and their stock prices plunge.

Then will come the moment of truth: Will government and Fed rescue the banks again? Probably. If repeated fraudulent behavior and felony convictions won’t make regulators force top banks out of business, it’s hard to see why a broader crisis would do it.

Being “too big to fail” is one reason the top bank stocks did so well since the crisis.

I don’t believe another crisis is imminent, but we’ll see one eventually. Whenever that is, people will get scared and sell off their bank stocks in a panic. If you’re ready with cash in hand, I think you’ll see some amazing bargains.

But in the meantime, you must preserve your capital.

One way to do that is with income-generating securities from stable, recession-resistant sectors and countries. Plenty are out there if you look in the right places. (Want specifics? I invite you to try Yield Shark risk-free today and get my capital protection and income ideas. Click here to learn more.)

The next step is the hardest one: wait. Your chance will come… but don’t move too soon.

See you at the top,

Patrick Watson

Since January 2013 we have been using the worldwide Semiconductor Equipment industry as a leader within the Semiconductor sector, which is an economic cyclical leader itself. That month we noted a positive move in Equipment bookings, which became a (3 month) trend that spring. This trend was used to project positive economic signals to come.

Through some turbulence in 2014 and 2015 the sector has remained on ‘economic up’ along with our cross reference indicator, the Palladium/Gold ratio right up to the current time as the economic Canary in a Coal Mine has kept on chirping.

But on November 21, two days before the sector topped I derisively poked at the mainstream media for hyping the Semiconductor Equipment sector with its bold headline… Fund manager looks beyond ‘FAANG’ stocks and finds even bigger winners for 2018. Talk about eyeball harvesting and greed stimulation.

The goofy article highlighted a fund manager who’s likely never dirtied his expensive shoes on a factory floor going on about how he has found value in the likes of Applied Materials and Lam Research. I gave a rebuttal per the link above and noted the reasons why this rosy scenario was unlikely to play out in 2018 for the cycle leading Semi sector and its sub-sector leader, the Fab Equipment companies.

So what do we have now? Why, in checks a real source of industry news (unlike the completely abstracted financial media crap we as investors are routinely subjected to) with affirmation of our November 21 viewpoint.

Still Growing But at a Slowing Pace

To review, in 2013 we projected Semi Equipment → Semi → broader Manufacturing → Employmentand it has played out that way over time and through much media drama and noise. But now the pace of a cyclical leader is slowing… even as the world stokes up on reflation (AKA fiscally stimulated inflation) and it all appears as good as it gets.

That is key. In Q4 2012 market players were embroiled in the Fiscal Cliff drama as my brother in law (a financial adviser) told me at Thanksgiving how the best and brightest fund managers were hording cash in expectation of a negative market event coming that December due to said Fiscal Cliff. My grunted response (which to this day I wish I’d had ‘all in’ conviction about) was “bullish”. That was the sentiment end of it, and the next month saw the Semi signals start coming in. The rest is history.

But January 2018 is much different than January 2013. If you have an interest in economic signaling or the Semi sector in particular, do check out the link above. Meanwhile, here are a few items from the article.

World semiconductor equipment shipment growth was a very robust +26 percent (3-month basis) in October but down from its +63 percent peak in February. By comparison, October global semiconductor shipments were up 22 percent, while November Taiwan chip foundry sales (a leading indicator) were up only 3 percent. Based on Chart 1 it appears the SEMI equipment growth will ease considerably in early 2018.

Comparing global SEMI equipment shipments to the Global Purchasing Managers Index (another leading indicator) also suggests that SEMI Equipment shipment growth will ease but still remain positive into the New Year (Chart 2). SEMI equipment demand remains strong, but the “bubble” growth like we experienced in 2017 is typically followed by a downward “correction,” especially since the current buildup in memory chip capacity will likely ebb in 2018.

I recommend you read the rest of the article. It is very short and to the point. The point being that the up cycle on the economic Canary in a Coal Mine is losing momentum and a respected industry source is projecting it to cycle down sharply in 2018. Now, why again did I make fun of the suit who manages other people’s money for a living when he got newly bullish on AMAT and LRCX in November?

This signal plays into only everything we are currently working on. An ‘inflation trade’ up to the projected limits, amid contrary indicators galore, to get everyone off sides as often happens when the Continuum ™ reaches its limiter. Right now it’s fiscally stimulated inflation and asset prices continuing to rise. But the Canary is going to stop chirping at some point, and then… cue the crickets.

Or for another metaphor, the game of Musical Chairs is going to require you find a seat. While enjoying the current party we are also working on defining the right seats for the hangover phase. Hint: two of them are shiny and made of gold and silver. Hint 2: another digs shiny stuff out of the ground and is counter cyclical.

NFTRH.com and Biiwii.com.

Ed Note: Make sure to read down to “Watch For Bond Market Troubles” & Commodities Entering New Bull Market

We’ve witnessed remarkable stock market performance in the last year and a half, with the Dow Industrials and S&P 500 not experiencing a 3 percent or greater pullback during this parabolic rally.

“This has never happened before in history,” Dorsch told Financial Sense Newshour. “There’s virtually no fear in the market for a pullback,” Dorsch said. “The only fear is the fear of missing out. This is a mania, which normally occurs at the tail end of a long-term bull market. Those who have missed the rally capitulate and begin to do things that they might not otherwise contemplate doing.”

Markets are psychologically driven, he noted, but from a policy perspective, central banks and corporations are certainly helping to fuel prices higher.

“We have negative interest rates wherever we look, either on a real basis discounted for inflation or in nominal terms,” he said.

Combined with stock buybacks by S&P 500 companies to the tune of $3.5 trillion over the last 8 years, retiring 18 percent of all floating shares in the market since 2009, it isn’t surprising stocks have marched higher.

Now, with the recent GOP tax cuts reducing the corporate rate and freeing $2.5 trillion sitting overseas for potentially more stock buybacks, we’re looking at a burgeoning mania in the works.

Watch for Bond Market Troubles

The consensus opinion is for the S&P to hit the 3,000 level, Dorsch stated.

With everything going well, only the Federal Reserve or an exogenous, unforeseen event can take the punch bowl away, Dorsch added. Barring these possibilities, we’ll see higher oil prices, faster inflation, and increased pressure on the Fed to raise interest rates.

However, there is one other possible villain in this story: that’s if the bond market begins to fall apart. If bond vigilantes raise 10-year bond yields to 3 percent, which is a good possibility, it could also hurt markets.

“If there’s going to be a correction, it’s going to be sharply higher interest rates caused by the bond market, forcing the Fed to take stronger action to fight inflation,” Dorsch said. “That would be the bearish catalyst. If that does not occur, if interest rates stay relatively low, then this mania will continue.”

Commodities Entering New Bull Market

Dorsch expects crude to hit somewhere between $65 and $70 a barrel, and for gold to move higher with commodities generally to around the $1,400 level. His basic scenario for the commodity markets is that this cycle is turning, he stated, and the 4.5-year downturn is over.

He also expects that President Trump’s administration is reliant on the stock market and will, therefore, seek to continue to keep the bull going.

“The stock market now has become too big to fail,” he said. “His presidency may even hang on the direction of the stock market—he’s become so committed to it.”

For Tuesday January 9, 2018

Available Mon- Friday after 3:00pm Pacific

DOW + 103 on 502 net declines

NASDAQ COMP + 6 on 214 net declines

SHORT TERM TREND Bullish

INTERMEDIATE TERM Bullish

STOCKS: Yesterday, I forgot to mention a fairly important indicator. The last 42 years in which the first five days were higher was followed by full year gains 36 times for an 85.7% accuracy rate. The average gain was 14%. In fact, this is actually the best start to a new year since 1987.

So, why so strong? There is great anticipation for major earnings gains as a result of less regulation and the recent tax cut.

That said, the internals are lagging, but that can go on for quite a while.

GOLD: Gold was down $6. The dollar rally is having an effect. We’re switching our evaluation below.

CHART: The S&P 500 was higher again, but there were more declining issues than advancing ones (arrow). That can sometimes be an early warning of some sort of pullback. But, the chart itself, meaning the ultimate indicator remains bullish.

BOTTOM LINE:  (Trading)

Our intermediate term system is on a buy.

System 7 We are long the SSO from 110.59. Keep your stop at 113.59

System 9 On a buy signal from Dec. 29.  

NEWS AND FUNDAMENTALS: This is a slow week for economic news. Job openings (JOLTS) were 5.879 million, less than the expected 6.038 million. On Wednesday we get oil inventories.

INTERESTING STUFF: Unite liberality with a just frugality; always reserve something for the hand of charity; and never let your door be closed to the voice of suffering humanity. ——–Patrick Henry

TORONTO EXCHANGE: Toronto inched up 2.

BONDS: Bonds collapsed.

THE REST: The dollar was higher. Crude oil surged to a new high.

Bonds –Change to bearish as of Jan. 9.

U.S. dollar – Bullish as of Jan. 3.

Euro — Bearish as of Jan.3.

Gold —-Switch to bearish as of Jan. 9.

Silver-— Switch to bearish as of Jan. 9.

Crude oil —-Bullish as of Dec. 26.

Toronto Stock Exchange—- Bullish as of September 20, 2017.

We are on a long term buy signal for the markets of the U.S., Canada, Britain, Germany and France.   

Monetary conditions (+2 means the Fed is actively dropping rates; +1 means a bias toward easing. 0 means neutral, -1 means a bias toward tightening, -2 means actively raising rates). RSI (30 or below is oversold, 80 or above is overbought). McClellan Oscillator ( minus 100 is oversold. Plus 100 is overbought). Composite Gauge (5 or below is negative, 13 or above is positive). Composite Gauge five day m.a. (8.0 or below is overbought. 13.0 or above is oversold). CBOE Put Call Ratio ( .80 or below is a negative. 1.00 or above is a positive). Volatility Index, VIX (low teens bearish, high twenties bullish), VIX % single day change. + 5 or greater bullish. -5 or less, bearish. VIX % change 5 day m.a. +3.0 or above bullish, -3.0 or below, bearish. Advances minus declines three day m.a.( +500 is bearish. – 500 is bullish). Supply Demand 5 day m.a. (.45 or below is a positive. .80 or above is a negative). Trading Index (TRIN) 1.40 or above bullish. No level for bearish.

  No guarantees are made. Traders can and do lose money. The publisher may take positions in recommended securities.  

www.toddmarketforecast.com

In his latest letter to clients GMO’s Jeremy Grantham conceded that stocks are on the verge of a “late bubble surge” melt-up, and as a result the upside from here before the next crash could be as much as 60% during the final phase of the current bubble.

….continue reading HERE

….also from ZeroHedge: Europe Becomes Victim Of Russia’s Newest Oil Strategy