​NIRP Crash Indicator back to Pre-Crash Level

Michael Markowski  |

The volatility of the yen versus all of the world's currencies today (April 28, 2016) has resulted in the NIRP Crash Indicator going from the cautionary Yellow to the Pre-Crash Orange reading at the opening of the U.S. markets. The indicator’s going to Orange increases the probability of a market crash being imminent.

The signal changed because the yen made significant gains against all of its major peer currencies earlier today. The yen’s three percent appreciation versus the dollar today 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 that it would not be increasing the utilization of monetary stimulus upon the conclusion of its April 28 policy meeting.

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 had gone to cautionary Yellow from the pre-crash Orange where it had been firmly entrenched since April 1, 2016. The indicator had spent the entire month of March at the cautionary Yellow. See "No April Fool's Joke: NIRP Crash Indicator Elevated to Pre-Crash Warning".

The indicator had gone from Pre-crash Orange to cautionary Yellow on Friday April 22, indicating that the probability of a market crash had lessened. The U.S. dollar had its biggest single day advance against the yen since October 2014 on Friday April 22nd. See NIRP Crash Indicator Proves its Reliability during April 2016.

The ranking system for the NIRP Crash Indicator’s signals that are freely available and posted at www.dynastywealth.com every day are as follows: Red: full crash; Orange: pre-crash; Yellow: caution; Green: clear. Information about origin, development and reliability of the NIRP Crash Indicator is also available at the Dynasty Wealth website.

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 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 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 my 9 minute 34 second vided interview by SCN’s Jane King entitled "Why Negative Rates could send the S&P 500 to 925" be viewed. In the video I explain the math behind why the S&P 500’s declining to below 1000 may be the only remedy to eliminate the negative rates.

For two reasons I am recommending the shares of the short biased ETFs below. The first is that the NIRP Crash Indicator’s going from Yellow to Orange has heightened the probability of a crash occurring. The second is that 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 can not 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)

April 24, 2016 NIRP Crash Indicator Proves it Reliability during April 2016

April 23, 2016 Why Market Could Spike to All-Time Highs Before it Crashes

April 15, 2016 Ridding World of Negative Rates May Require Meltdown of Income-Producing Assets

April 11, 2016 Yen Volatility Increases Probability of a Crash Happening Sooner

April 11, 2016 Negative Rates Pose Grave Risks to Banks(originally published Mar 12, 2016)

Mar 05, 2016 Cash Hoarding has Thrust Negative Rates into Lead Role for Next Crash

Mar 02, 2016 Dynasty Wealth Founder discusses NIRPs in Interview by SCN's Jane King

Feb 26, 2016 Black Swan Pre-Cash Investing Strategy Recommended (excerpt from 02/26/16 report

Feb 26, 2016 Japan's NIRP Increases Global Market-Crash Probability

Feb 26, 2016 Acclaimed Analyst Produces “NIRP Crash Indicator”

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:

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.

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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