Wealthbuilder Stock Market Brief 1st August 2014.

The Anticipated Correction Has Commenced. Last month I wrote that the stock market was overvalued and that caution was warranted.

On the 26th

. of July I sent an email to student clients advising them that a pullback was immanent and that they

should go to cash and keep their powder dry to buy back when technical support levels become obvious.

The catalyst for this decision was the technical breakdown of Amazon on the 25 th. July. Amazon has always been a

bell weather of mine and I did not like what I saw on that faithful day. This event, in conjunction with the technical

collapse of the Consumer Staples ETF: XLP, motivated me to take immediate action.

The anticipated correction started yesterday, a month or so sooner than I expected.

Yesterday’s price movement has done considerable technical damage to all indices.

Based on Dow Theory we now have definite change in sentiment. The market is now in a short term bear trend,

though the overall bull is still intact. The 15445 level on the Dow Industrials and the 7135 Levels on the Dow

Transports would have to be violated before this bull comes under threat.

Amazon: Daily Chart.

XLP: Daily Chart.

Dow Industrial: Daily Chart.

Dow Transports: Daily Chart.

Bail-in Jitters Spread.

Bank Of England Leads Push For Deposit Confiscation – Japan, China,

Russia Vote Against.

Throughout Europe rumors on new bank “bail-ins” are spreading. Below is a recent article published by GoldCore

on the 22nd

? July:

“Bank of England officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp

differences among leading G20 countries as they prepare a landmark set of proposals aimed at tackling the problem

of “too big to fail” banks according to the Financial Times today.

Talks under the auspices of the global Financial Stability Board (FSB) over the summer are approaching a key

stage as officials aim to clinch an agreement on bail-ins and the bailing in of creditors including depositors of

banks.

Finance officials are hoping to pave the way for proposals to be tabled at the G20 leaders meeting at the Brisbane

summit in November.

The issue is of major consequence to globally systemic lenders such as Citigroup, Barclays and BNP Paribas, as

some will have to issue billions of dollars of fresh bonds earmarked to carry losses.

The issue is of major consequence also to depositors who could see their savings confiscated as happened in

Cyprus.

The complexity of the topic and differences between countries’ legal regimes and corporate structures are raising

questions over how detailed any framework will be.

Japan is one of the countries with problems with bail-in plans amid concerns that they are not easily compatible

with the structure of its banking system. Its banks are heavily deposit-funded, and officials are uncomfortable about

the idea of bail-ins.

Japanese banks are already vulnerable and bail-ins could hurt consumer sentiment in the already struggling

Japanese economy. Concerns in Tokyo are said to be sufficiently profound for it to push its case right up to the

summit itself.

China is also skeptical about the notion of private sector bail-ins given its banks are state-owned. “There are some

very entrenched positions,” one official told the FT.

Russia is likely to oppose the coming bail-in regime as well as many other large creditor nations.

Mr. Carney, who also chairs the FSB, said in March he wanted to “break the back” of the too big to fail issue this

year. He said regulators sought by Brisbane to have cracked two major issues – on the loss absorbing capacity that

big banks have to hold and on contractual provisions in derivatives contracts.

Be under no illusion, bail-ins are coming to banks in the western world with consequences for depositors.”

I have set out below a list of “safe” and “un-safe” banking countries based on mainstream analysis.

In the main Germany is regarded as a safe country for banking institutions, however I would suggest that Deutsche

Bank not be included on your banking radar.

Since March of this year its share price has collapsed due to its extraordinary derivative exposure (72 Trillion

Dollars) and the fact that its New York branch has been implicated in money laundering by New York’s attorney

general.

If the management crisis continues within Deutsche Bank it is quite possible that this bank could require significant “restructuring” to avoid collapse. Such an eventuality would bring the whole German banking structure

under considerable stress. What a turning of the tables that would be for Angela Merkel.

Countries with weakest banks: Countries with safest banks: 1. Greece 1. Switzerland 2. Portugal 2. Germany 3. Spain 3. Singapore 4. Italy 4. Canada 5. France 5. Australia 6. Ireland 6. Norway 7. UK 7. Netherlands

Deutsche Bank: Daily Chart.

Charts courtesy of Worden Bros.

© Christopher M. Quigley 1st August 2014.