Financial Market Report for December 8, 2010
the 7 to 10 Year US Government Debt, IEF, to fall 0.85%,
the 10 to 20 Year US Government Debt, TLT, to fall 0.97%,
the Mortgage Backed Bonds, MBB, to fall 0.32%,
the Intermediate Bond Mutual Fund, GSUAX, to fall 0.29%,
Municipal Bonds, MUB, to fall 0.75%,
PIMCO 1-5 Year Tips, STPZ, to fall 0.35%,
Tips, TIP, to fall 0.98%,
PIMCO 15 Year TIPS, LTPZ, to fall 1.73%,
Jody Shenn of Bloomberg reports Mortgage-Bond Yields That Guide Home Loan Rates Soar to Highest Since June: “Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates jumped to their highest levels in almost six months, suggesting borrowing costs will continue to climb from record lows. Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose to 4.04 percent as of 5 p.m. in New York, according to data compiled by Bloomberg. Yields, whose changes typically create similar movements in loan rates, have increased from 3.27 percent on Nov. 4.”
Needless to say, today, December, 8, 2010, it was a slaughterhouse in the bond market with those invested in bonds getting slashed left and right. The End of Credit commenced November 4, 2010 with higher interest rates and falling currency price.
II … November 4, 2010, was the tipping point of the age
The world tipped from the “age of debt liquidity” …. and into “the age of debt deflation”… where there has been disinvestment from Emerging Markets, EEM, Asia Excluding Japan, EPP, Utilities, IPU, and diversified utilities, CNP, and Junk Bond, JNK, emerging market bonds, EMB, international corporate bonds, PICB, World Government Bonds, BWX, short duration corporation bonds, LQD, as well as total bonds, BND.
It was on November, 4, 2010, bond vigilantes called the Interest Rate on the US Ten Year Note, $TYX, and the Interest Rate Higher on the 30 Year US Government Bond, $TNX, higher as Ben Bernanke’s QE2 constitutes monetization of debt.
The anticipation of Quantitative Easing Two created a liquidity trade, that was a safe money trade, a money good trade. But investors sold Ben Bernanke’s actual announcement of QE 2.
And it was on November 4, 2010, that the currency traders followed on the heels of the bond vigilantes and sold the world’s major currencies, DBV, and the emerging market currencies, CEW, causing the US Dollar, $USD, to rise.
In summary, it was debt deflation, that is currency deflation, seen in DBV and CEW, stimulated by rising interest rates, that turned emerging markets, EEM, Asia Excluding Japan, EPP, Utility Stocks, IPU, and Total Bonds, BND, lower.
The major cumulative competitive currency devaluations, that is the competitive currency losses, since November 5, 2010 are as follows:
New Zealand Dollar, BNZ, -6.5%
Euro, FXE, -5.5%
Swedish Krona, FXS, -4.0%
Australian Dollar, FXA, -3.5%
Yen, FXY, -3.2%
Emerging Market Currencies, CEW -2.2%
III … The fall of the 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX, was the trigger that started precious metal mining shares to sell off yesterday December 7, 2010.
Today, the precious metal mining shares, GDX, and the Junior Gold Mining Shares, GDXJ, and the Silver Mining shares, SIL, and Silver Standard Resources Inc, SSRI, continued to fall lower on falling debt and the falling yield curve. Lower precious metal mining shares have something in common with debt; both are value shares. There has been value in debt up until November 5, 2010, and there has been value in the precious metal mining shares up until December 8, 2010.
Historical evidence shows that the precious metal mining shares turn lower with the 30 Year US Government Bonds, as is seen in chart of $HUI:$USB.
There is a time when gold mining shares become too expensive relative to gold. This is seen in the fall of the value of the junior gold mining shares relative to gold GDXJ:GLD.
Investment in the HUI Precious Metal mining shares, ^HUI, has been the great swing trade of investment history; the parabolic rise and now fall seen in the chart of the gold mining shares, GDX, suggests investment appetite, which has come via debt and carry trade investing is over; and that risk aversion is now ruling,
All the way up
All the way down
Never look back
It’s time to breakout
I want it my way
It’s a temporary life
It’s a ride
That takes you all the way up
All the way down
Never look back it’s time to breakout
IV … Risk is not on … Risk is off.
Uranium Miners, URA, -3.0%.
Metal Manufacturing, XME, -2.2%.
Potash Corp, POT, -2.2%
Industrial Metal Equities, CRBI, -2.0
Chinese Materials, CHIM, -1.7%
Steel manufacturers, SLX, -1.2%.
International Basic Materials, DBN, -0.6%.
China, FXI, -1.6%.
India, INP, -1.4%
India Earnings, EPI, -1.0
India Small Caps, SCIF, -2.4%
Brazil, EWZ, -1.3%
Brazil Financials, BRAF, -1.6%
Brazil Small Caps, BRF, -1.0%
Agricultural Industry, MOO, -1.5%
Yes with a rising USD/JPY, and a falling JYN, risk is definitely off.
The bearish engulfing candlestick seen in the chart of small cap pure value shares relative to small cap growth shares, RZV:RZG, suggests that debt deflation, that is currency deflation is going to pick up again.
I believe that the Morgan Stanley Cyclical Index, $CYC, ^CYC, which is the “ investment of risk”, that is the investment of global economic expansion, which is currency trading driven, is going to turn lower very soon, most likely tomorrow, December 9, 2010, on carry trade disinvestment.
V … Now with the Interest Rate on the US Ten Year Note, $TYX, moving progressively higher, real estate shares are turning lower.
Apartment Investment And Management CO, AIV, -2.4%
Brookfield Properties, BPO, -1.6%
Industrial And Office Real Estate, FIO, -1.9%
Vornado Real Estate, VNO, -1.6%
PSR Active Real Estate, PSR, -1.8%
Real Estate, IYR, -1.5%
Residential Real Estate, REZ, -2.0%
Simon Property Group, SPG, -1.7%
Stanwood Property Trust, STWD, -4.1%
VI … Summary
From the announcement of QE 2 as well as the call by Mrs Merkel of Germany for a soveign debt default mechanism, has rippling waves of investment destruction and with the rise of the 10 Year Interest Rate and mortgage rate today, risk appetite has turned to risk avoidance.
The high mortgage interest rate has terminated the bankers FASB 157 entitlement to mark real estate to managers best estimate; now higher interest rates are calling real estate prices lower.