Mid day financial market report for November 11, 2010
I … Stock Futures Fall As G20 Summit Convenes. Stephen Bernard, of the Associated Press writes on Thursday November 11, 2010, 8:19 am EST from New York before the markets open: Stock futures slipped Thursday as world leaders attempt to come up with plans to strengthen a weak global economy and signs of rising inflation in China.
A disappointing outlook from Cisco Systems Inc. rattled technology shares, sending tech-heavy Nasdaq 100 futures much lower than other index futures.
Volume could be light because of the Veterans’ Day holiday, which would exaggerate moves. Bond trading is closed for the holiday and the government is closed so there will be no readings on the economy.
The Group of 20, which encompasses leaders from major rich and developing nations, are meeting in South Korea and trying to hammer out plans to help support a global recovery that has accelerated in some countries like China while more developed countries like the U.S. have struggled to rebound.
Currency manipulation, trade gaps and protectionism are the major topics the group is expected to discuss.
Some countries criticized the U.S. last week after the Federal Reserve announced a bond-buying program that effectively cut the value of the dollar. The U.S. and others have criticized China for holding its currency artificially low.
A weak currency helps a country’s exports because they become cheaper to sell overseas. That can lead to big trade imbalances and protectionist reactions from government’s trying to keep their own countries’ goods from being priced out of the world market.
Leaders are trying to sort through those issues to avoid a string of currency devaluations that could stunt a global recovery.
Ahead of the opening bell, Dow Jones industrial average futures fell 55, or 0.5 percent, to 11,247. Standard & Poor’s 500 index futures fell 7.60, or 0.6 percent, to 1,206.50, while Nasdaq 100 index futures fell 20.00, or 0.9 percent, to 2,154.50.
Traders were also concerned with a report that inflation rose in China in October at its fastest pace in more than two years. Rising inflation could force the Chinese government to impose new controls that could slow growth in the country. That, in turn, could slowdown a global recovery.
The dollar, $USD, gained ground against the Euro, FXE, Thursday, and was little changed again Japan’s yen, FXY. The Japanese government has flooded currency markets multiple times in recent months with yen to cut the value of the currency as it hovers near a 15-year low against the dollar. (Chart of the USD/JPY, which is traded by the ETF, JYN)
The Euro, FXE, has struggled in recent days because of fresh concerns about government debt problems, particularly in Ireland, EIRL.
A steadily declining dollar over the past two months has helped funnel money into stocks and commodities as investors seek better returns.
In corporate news, for the second straight quarter Cisco provided investors with a disappointing sales forecast that has driven its shares sharply lower in pre-opening trading. Cisco shares fell $4.09, or 16.8 percent, to $20.40.
The computer network equipment maker said its revenue will rise by less than half of what analysts’ had predicted for its November through January quarter. There are worries that smaller competitors are cutting into Cisco’s large market share.
II .. Stock fall world-wide at market opening, evidencing that a global bear stock market started Friday November 5, 2010. Debt deflation is strongly underway in stocks today. Peak stock wealth has been achieved.
US Shares are falling today: New York Composite, NYC, -0.7%, S&P, SPY, -0.7%, Russell 2000, IWM, -0.8%, Semiconductors, SMH, -2.2%, Real Estate, IYR, -1.0, Dow Internet, FDN, -1.3, Nasdaq Internet, PNQI, -0.7%, Internet, HHH, -1.2%, Banks, KBE, -1.1%, Gaming, BJK, -1.3, Insurance, KIE, -1.2%. The 1.8% fall in the Barclays Leveraged S&P, BXUB, evidences that a bear market is underway in the US shares.
World Shares, ACWI, -0.8%. A global bear stock market commenced on November 5, 2010, when World Shares fell from the November 4, 2010 rally high of 46.60 to the November 5, 2010 value of 46.51.
Europe, VGK, -1.4%
European Financials, EUFN, -1.9%
Europe Small Cap Dividends, DFE, -2.4%
Ireland, EIRL, -2.1%
Italy, EWI, -2.6%
Spain, EWP, -2.7%
Sweden, EWD, -2.4%
Austria, EWO, -3.15
Poland, EPOL, -2.5%
Emerging Europe, ESR, -2.0%
Clean Energy, ICLN, -2.7% The strong sell off in clean energy since November 5, 2010, evidences that a global bear market has commenced.
Solar, TAN, -3.7%.
Wind Energy, FAN, -1.5%
International Dividend Payers, DOO, -1.9%. The fall in International dividend payers is additional evidence that a global bear stock market is underway; these fell to 46.37 on November 5, 2010.
Nanotechnology, PXN, -0.8%
India Earnings, EPI, -1.8%
New Zealand, ENZL, -1.5%
Australia, EWA, -1.5%
Japan, EWJ, -0.6%
Hedged Japan, DXJ, -0.7%
Mexico, EWW, -0.1%
Canada Small Caps, CNDA, -0.9%
Australian Small Caps, KROO, -1.4%
Australia, EWA, -1.1%
Brazil Small Caps, BRF, -0.8%
India, INP, -1.6%
Turkey, TUR, -2.2%
China, FXI, -0.3%
Chinese Small Caps, HAO, -0.9%
Nuclear Energy, NLR, -0.7%. The fall of Nuclear Energy to 23.86 on November 5, 2010 evidences that a global bear market is under way.
Copper Miners, COPX, unchanged
Austria, EWO, -3.1%
Exxon Mobil, XOM, unchanged
Energy Services, OIH, -0.5%
South Korea Small Caps, SKOR, -1.8%
Taiwan, EWT, -0.8%
South Korea, EWY, -0.8%
Hong Kong, EWH, -0.8%
Singapore, EWS, -0.2%
Malaysia, EWM, -1.5%
Thailand, THD, -2.8%
Indonesia, IDX, -1.7%
Asia Excluding Japan, EPP, -1.3%
Asia High Yielding, DNH, -1.4%
Chile, ECH, -0.6%
Poland, EPOL, -2.5%
Emerging Europe, ESR, -2.0%
Russia, RSX, -1.4%
Chile, ECH, -0.6%
South Africa, EZA, -0.6%
The United Kingdom, EWU, -0.2%
Emerging Markets, EEM, -1.2%
The junior gold mining shares, GDXJ, -1.0%
Small Cap Pure Value, RZV, -1.2%
Small Cap Pure Growth, RZG -0.9%
III … Volatility suggests that a bear market has been underway since November 5, 2010 as the S&P Mid Term Futures Volatility, VXZ, increased to 68.58 on November 5, 2010, and as Inverse Volatility, XXV, fell to 31.58 on November 8, 2010, and Volatility, VXX, rose to 45.17 on November 8, 2010
IV … Commodities, DBC, are trading down. 0.3%
V … The world’s currencies are trading down and the US Dollar is trading up.
Currency traders sold the world’s currencies against the US Dollar today November 11, 2010, on news of Eurozone sovereign debt issues: a new and greater Eurozone Debt crisis has emerged with Ireland and Portugal at its epicenter.
The currency traders commenced a global currency war on November 5, 2010 when the world currencies, DBV, peaked at a high of 24.10 and sold off on November 8, 2010.
The European Financials, EUFN, in addition to the Interest Rate on the US 30 Year Interest Rate, $TYX, are the current focal points of the global currency war, which started November 5, 2010, as the currency traders have undertaken a plan to establish global corporatism and themselves as sovereign over humanity.
Global competitive currency deflation, that is global competitive devaluation, has come at the hands of the currency traders, as concerns have arisen over the sovereign debt of Ireland and Portugal, and that the US Federal Reserve’s QE 2 purchases of US Government debt constitutes monetization of debt.
OpenEurope reports in its November 11, 2010 Press Summary relates EUobserver notes that fears of a new eurozone debt crisis have also been fuelled by Portugal, whose yield on 10-year-bonds has reached a record 6.8%. El País quotes Francesco Garzarelli, chief interest-rate strategist at Goldman Sachs, warning: “The likelihood of Ireland and Portugal entering an IMF-designed adjustment program funded by the European Financial Stability Facility has, in our view, increased”. An article in the WSJ, WSJ 2 notes that the Greek government is lagging behind its targets on deficit reduction because of “anemic” tax revenue.
Writing in Die Zeit ,ECB board member Lorenzo Bini-Smaghi criticises German Finance Minister Wolfgang Schäuble’s plans to automatically punish bondholders in the event of future bailouts for ailing eurozone countries, arguing that such an arrangement “would lead to destabilization of the markets in practice which will have serious consequences for the economies in the eurozone”.
The Swedish Krona, FXS, -1.2%
The Australian Dollar, FXA, -0.8%. The Australian Dollar, FXA, has fallen below 100 to trade at 99.73.
The Euro, FXE, -0.8%; the Euro is trading at 135.94 at the edge of a head and shoulders pattern.
The Canadian Dollar, FXC, -0.4%
The Indian Rupe, ICN, -0.3%
The Brazilian Real, BZF, -0.6%. The Brazilian Real, BZF, has broken from a ledge of support and fallen lower.
The Mexico Peso, FXM, -0.6
The New Zealand Dollar, BNZ, -0.3%
The Yen, FXY, -0.2%
The British Pound Sterling, FXB, -0.1%
The major currencies, DBV, -0.5%
The developing market currencies, CEW, -0.1%
The ratio of the major currencies, DBV, relative to the emerging market currencies, CEW, DBV:CEW, is manifesting a lollipop hanging man candlestick, suggesting that the debt burdened major currencies are about to lose value relative to the emerging market currencies.
In the global currency war, which commenced November 5, 2010, the most indebted currencies are likely to be sold first and hardest by the currency traders.
EuroIntelligence reports in article Ireland Going Down Irish 10 year yields hit 8.7%, and the spread with German bonds is now 6.5%; LCH Clearnet imposes larger margin requirements for Irish trades; the Greek adjustment programme is collapsing, as the projected 2010 deficit is now put at 9.3%, as opposed to a projected 7.8%; Papademos insists on no restructuring; an increasing number of market participants now believe that Greece and Ireland will eventually default, as they are beginning to digest the implications of the German crisis resolution proposals; Portuguese yields also rise/
ECRM – its a new acronym. After the EFSF and ESRB, comes the ECRM, or will it be the EMF? After the proposal by Daniel Gros and Thomas Mayer for an EMF, comes the counter-proposal from the Bruegel team by Francois Gianviti, Anne Krueger, Jean Pisany-Ferry, Andre Sapir and Jurgen von Hagen, for a European Sovereign Debt Crisis Resolution Mechanism, or ECRM. Here is the link to the paper. In the introduction the authors characterise their main points thus: A procedure to initiate and conduct negotiations between a sovereign debtor with unsustainable debt and its creditors leading … in order to re-establish the sustainability of its public finances. This would require a special court to deal with such cases. … Rules for the provision of financial assistance to euro-area countries as an element in resolving the crisis. Should a euro-area country be found insolvent, the provision of financial aid should be conditional on the achievement of an agreement between the debtor and the creditors reestablishing solvency.
Mervyn King’s warning of trade imbalances and current account imbalances are becoming increasingly apocalyptic. This was contained in an article on Alan Greenspan in the FT. It is not very interesting what Greenspan has to say, but the comment from Mervyn King is of a different order. “If we end up 12 months from now with countries taking protectionist measures, everyone will suffer. I think the absolute imperative for this weekend [at the G20] is a clear demonstration that every member of the G20 recognises that the imbalances are a problem . . . If we don’t do that then I fear the next 12 months will be an even more difficult and dangerous period than the one we have been through.”
John Glover and Michael Shanahan of Bloomberg report Irish Bank Default Swaps Surge to Distress on Cost of Bailout. The cost of insuring the bonds of Irish banks soared to distressed levels amid concern that the government won’t be able to afford the cost of bailing out the nation’s banks.
The US Dollar, $USD, traded by the 200% ETF, UUP, is up 0.5%, suggesting that the US Dollar, $USD is up 0.25% today.
VI. … Bonds are trading lower; the world has passed through peak credit, that is peak bond wealth.
Total Bond, BND, are trading 0.1% lower.
Aggregate Bonds, AGG, are trading 0.1% lower.
The 1 to 3 Year Government Bonds, IEI, are trading 0.2% lower; these are the very ones targeted for purchase under QE2 for stabilization. Quantitative Easing is a total waste of money: why attempt to stabilize something is inherently unstable.
World government bonds, that is sovereign debt of the nations, BWX, is trading 1.0% lower; it has fallen from a head and shoulders pattern and today has commenced a strong sell off. Investing in sovereign debt is no longer a profitable investment opportunity.
Emerging market bonds, EMB, is trading 0.2% lower; and the chart pattern being similar to world government bonds, suggests that it is unwise to invest in sovereign debt in the emerging markets as well as the developed world.
Likewise international corporate bonds, PICB, is trading 0.7% lower and has fallen from support as well.
The currency traders have established themselves as sovereign over the governments of the world and over the world’s financial markets today November 11, 1010. The bond vigilantes and the currency traders have seized sovereign debt seigniorage authority from the world banks and world governments; and established themselves as the sovereign governing power in the world today.
VII … Five indicators evidence that investing long via Yen carry trades, and US Dollar carry trades is history
1) The fall in Junk bonds, JNK, from their Thursday November 4, 2010 high of 41.25. The chart of Junk Bonds suggests that the world has passed through Peak Investment Liquidity.
2) The fall in the Optimized Currency ETN, ICI, from its November 8, 2010 high of 47.40 suggests hat peak fiat currency wealth has been achieved and that currencies cannot be leveraged one against another for long-term gain.
3) The fall in the small cap pure value shares, RZV, relative to the small cap growth shares, RZG, RZV:RZG, below support of 0.815 suggests that the currencies in falling lower are deflating the worth of the value shares and that carry trade investing can no longer be profitable.
4) The rise in the US Dollar, $USD, traded by UUP, suggests that the currency traders are now repaying their dollar carry trade loans taken out at Wall Street Brokerages.
5) The global yen carry trade, ACWI:FXY, has fallen lower from a lollipop hanging man candlestick over debt issues in Europe, suggests that world stocks are going to fall lower.
VIII. … Gold, GLD, and silver, SLV, remain stable.
Wealth can only be preserved by investing in the these two hard assets. The precious metal futures, JJP, rose 0.1%. The Junior gold mining shares, GDXJ, traded 0.1% lower.
The gold mining shares relative to the price of gold, GDX:GLD, has topped out suggesting that the HUI Precious Metal Mining, ^HUI, shares can no longer produce as good a return as gold itself. The HUI topped out November 8, 2010 at 567.91.
Disclosure: I am invested in gold bullion
Stocks: DOO, NLR, RZV, ICLN, ACWI, BND, FXE, UUP, VGK, EUFN, DFE, EIRL, EWI, EWP, EWD, EWO, EPOL, ESR, TAN, FAN, PXN, EPI, ENZL, EWA, DXJ, EWJ, EWW, CNDA, JNK, FXS, FXA, FXC, ICN, BZF, FXM, FXY, FXB, DBV, CEW, GLD, SLV, EMB, DBC, VXZ, XXV, VXX, NYC, SPY, IYR, FDN, PNQI, HHH, KBE, BJK, KIE, BXUB, KROO, BRF, INP, TUR, FXI, H