Financial market report for April 8, 2010.
Stocks fell lower on April 8, 2010, as inflation destruction, and failure of quantitative easing commenced on an oversold US Dollar. Look for a global currency war of competitive currency deflation to commence as world government bonds, BWX, and emerging market bonds, EMB, fall lower.
The mother of all bear markets has commenced; the world has entered into the end of credit as it has been known; Kondratieff Winter has commenced.
1) … Inflation destruction manifested April 8, 2010.
Urban Dictionary defines inflation destruction as the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies. Inflation destruction begets more of the same as former vigilant investors turn short sellers, and carry out their attack on their former investment.
Inflation Destruction may precede Debt Deflation which is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
West Texas Intermediate Crude, $WTIC, 2.2%, USO 2.6 %, and DBC 2.4 %
Bonds, BND, -0.06%, 30 Year US Treasuries, EDV -.34 %, 10 US Government Bond, TLT -.53%.
Stocks falling lower included:
Consumer Discretionary: Entertainment: Royal Cruise Line, RCL, -3.5%
Office Supplies: ACCO Brands, ABD, -3.4%
Office Supplies, Deluxe, DLX, -3.0
Textiles: Interface, IFSIA, -3.0
Processing Systems And Equipment, Polycom, PLCM, -3.0
Aerospace:BE Aerospace, BEAV, -2.9
Flash storage: SanDisk, SNDK, -2.7
Airlines, FAA, -2.5
Basic Materials: Building Supplies: Armstrong World Industries, AWI, -2.6
Business Equipment: Furniture: Steelcase, SCS, -2.5
Business Services: United Rentals, URI, -2.2
Industrial: Paper: KapStone Paper, KS, -2.1
Consumer Discretionary: Rental Centers: Rent A Center, RCII, -2.1
Consumer Services: Restaurants: Chipotle Mexican Grill, CMG, -2.0
Health Care: Medical Appliances: ZOLL, -2.0
Emerging Market Financials, EFN, -2.0
Manufactured Housing, CVCO, -2.0
Sporting Activities, International Speedway, ISCA, -1.9
Consumer Goods: Appliances: Whirlpool , WHR, -1.9
India Small Cap, SCIN, -1.7
Small Cap Industrial, PSCI, -1.7
Transportation, IYT, -1.7
Banks, KRE, -1.7
Turkey, TUR, -1.6
Design And Build, PKB, -1.6
Small Cap Consumer Discretionary, PSCD, -1.6
Small Cap Revenue, RWJ, -.1.4
Small Cap Pure Value, RZV, -1.4
Deflationary: Nanotechnology, FEI, FEIC, -1.4
Small Cap Information Technology, PSCT, -1.3
Small Cap Health Care, PSCH, -1.2
Too Big To Fail Banks, RWW. -1.2
Russell 2000, IWM, -1.1
Retail, XRT, -1.1
Retail REIT: Gilmcher Realty Trust, GRT, -1.3
Retail REIT: SL Green Realty, SLG, -1.1
Printed Circuit Boards: Vishay Intertech, VSH, -1.1
Asset Management: Blackstone Group, BX, -1.1
Environmental And Waste Services, EVX, -1.0
Brazil Financials, BRAF, -1.0
South Korea Bank, KB Financial, KB, -1.0
Solar, KWT, -1.0
Small Cap Industrial Shares falling lower included the
Industrial Shares falling lower included the following
Cummins, CMI, -1.2%
Actuant, ATU, -1.2
Graftech, GTI, -.2.8
Parker Hannifen, PH, -1.7
Eaton, ETN, -1.3
The Morgan Stanley Cyclical Index, $CYC, -.1.1%
Bloomberg reports Fisher Says Fed at 'Tipping Point' of Overstimulating U.S. Economic Growth. Federal Reserve Bank of Dallas President Richard Fisher said the central bank faces a “significant” risk of providing record stimulus for too long and should weigh curtailing its $600 billion bond-purchase plan. “We at the Fed are near a tipping point,” the 62-year-old regional bank chief said in a speech today in Dallas. “Just as we pressed on in doing our duty through extraordinary, exigent measures, we must now discipline ourselves to just as persistently normalize our operations in a timely way.” “Having done our job, I see many risks to the Fed overstaying its welcome,” Fisher said during the Society of American Business Editors and Writers 2011 Annual Conference. “Inflationary impulses are gaining ground in the rest of the world,” Fisher said today. With businesses grappling with higher commodity prices, “my gut tells me that this will result in some unpleasant general price inflation numbers in the next few reporting periods,” and “there is the risk that we might breach our duty to hold inflation at bay.” “Continued accommodation presents significant risks,” Fisher said. “In my view, no amount of further accommodation by the Fed would be wise,” whether it is adding more purchases or “tapering” the plan to purchase Treasuries beyond June. “Indeed, it may well be that we should consider curtailing what remains” of the bond-purchase program, he said. “We’re there” in terms of the need to end accommodation now, Fisher said, when asked whether he would prefer to wait until June. He added that inflation is “not out of hand yet.”
Bloomberg reports Europe's $2 Trillion of Distressed Debt Set to Outstrip U.S. The distressed debt market in Europe is set to outstrip the U.S. for the first time as the region’s sovereign crisis forces banks to sell $2 trillion of underperforming assets, Strategic Value Partners LLC said. The question is who will buy these assets. And, Fidelity Investments distressed securities mutual fund, FAGIX, rose to a new weekly high.
Junk Bonds, JNK, -0.1%
The chart of World Stocks relative to World Government Bonds, VT:BWX, communicates the failure of seigniorage of sovereign debt.
And the chart of World Stocks relative to distressed securities, VT:FAGIX, communicates the failure of quantitative easing.
2) … The week ending Friday April 8, 2010 marked the transition from the Age of Leverage into the Age of Deleveraging.
The Age of Leverage was characterised by inflation, debt expansion, credit liquidity, stability, economic growth and expansion, democracy, neoliberalism and prosperity.
The Age of Deleveraging is characterised by inflation destruction, debt deflation, credit ill-liquidity, instability, economic contraction, totalitarianism, state capitalism, and austerity.
The failure of government in Portugal and has ended democracy and has started totalitarianism.
Failing seigniorage of the former neoliberal economic system and the resulting inflation destruction has has turned Chinese down as Kelvin Chan of the Associated Press reports: “When millions of workers didn't return to their southern China factory jobs after Lunar New Year holidays, a turning point was reached for foreign manufacturers scraping by with slim profit margins. Companies were already under pressure from rising raw material costs, restive workers and lower payments for exports because of a stronger Chinese currency… Some 30 to 40 percent of migrant workers didn't return to their factory jobs in Guangdong province's Pearl River Delta manufacturing heartland after the annual Lunar New Year holiday in February, said Stanley Lau, deputy chairman of the Hong Kong Federation of Industries. Typically the proportion is 10 to 15%. That was despite Guangdong authorities raising minimum wages by up to 20% in March."
3) … All Policies Must Suit Germany
Shaun Richards writes “We are back to the fundamental problem of the Euro zone which is that it does not have political union and a common fiscal policy. Therefore it has no way of dealing with the effect on the weaker Euro zone economies. We are back to the subject of what I call “three-speed Europe” and as interest-rates are being set for the fastest the slowest will be hurt by this.”
Shaun Richards is one of many authors who authors communicate that Euro zone monetary policy is being set to suit Germany. Mr Richards relates: “The European Central Bank faces inflation of 2.6% and responds by raising its interest-rate from 1% to 1.25%. The Bank of England faces inflation of 4.4% on the same measure but leaves its official interest-rate alone at 0.5%..Furthermore many of its members tell us that raising interest-rates will not help reduce inflation.”:
Open Europe relates:
Dog Eat Dog World
Some straight talking from Borg
The Portuguese bail-out: Another one bites the dust
Euro rallies to 14-month high on rate bets
WFJM News EU says Portugal needs about $114 billion in aid: "The predominant view in markets is that this step ring-fences the three weaker economies of the euro area and therefore helps to avoid wider contagion," said Klaus Regling, who manages the European Financial Stability Facility
4) … A one world bank and a one world government with a world Chancellor, a Sovereign, and a world Banker, a Seignior, will arise out of sovereign debt crisis.
Shanghai Securities News and Between The Hedges relate: “A unified central bank for the world should be established in the long term as part of efforts to reform the international monetary system, Wang Yong, a professor at the People's Bank of China's training school in the city of Zhengzhou, wrote in a commentary. This proposed bank would oversee global monetary and financial regulation and also be responsible for issuing a sing international currency, Wang wrote.”
5) …Mike Mish Shedlock reports Yield curve widens as long-term rates rise. The inverse of the 30 10 Yield Curve, that being the 10 30 Leverage Curve, $TYX:$TNX, flattens. A steeping yield curve at this time increases risk -- look for risk appetite to change to risk avoidance.
The S&P stalls as the yield curve steepens. A steepening yield curve, seen in the Flattener ETF, FLAT, falling, has caused the S&P, SPY, to stall out …. chart of FLAT and SPY.
6) …. A current liquidity bubble might mean a soon coming US Dollar shortage.
Patricia Kuo of Bloomberg reports: “ING Groep NV, the top arranger of buyout loans in Europe this year, sees a ‘liquidity bubble’ building as lenders forego protection and accept lower fees. ‘There is a liquidity bubble in the European leveraged loan market at the moment, driven by institutional fund liquidity,’ said Gerrit Stoelinga, global head of structured acquisition finance at ING, which toppled Lloyds Banking Group Plc as no. 1 loan arranger to private-equity firms”
Maria Petrakis of Bloomberg reports “With markets indicating Portugal may be the last euro country to need a bailout, investors are turning their attention to a potential bond restructuring in Greece, whose unmanageable debt load triggered the crisis. Greek bond yields have soared and the nation’s credit ratings have been cut since May when the country got 110 billion euros ($157bn) of aid in return for wage and pension cuts.”
Jody Shenn of Bloomberg reports “The biggest year since 2003 for the packaging of U.S. government-backed mortgage bonds into new securities has extended into 2011, bolstered by banks seeking investments protecting against rising interest rates. Issuance of so-called agency collateralized mortgage obligations, or CMOs, reached $99 billion last quarter, following $451 billion in 2010.”
Has Annaly Capital Management topped out? …. Chart on NLY.
Doug Noland of Prudent Bear writes: “This is a dangerous period. Global liquidity is way too plentiful, while speculation has become too all-embracing and rewarding. Indications of monetary excess are everywhere. Indeed, we’re in the midst of the biggest financial Bubble in history (the “Global Government Finance Bubble”), yet everyone seems comfortably oblivious. The Fed will persevere with its doctrine of ignoring asset prices, government borrowing excesses, market distortions and rampant speculation. These don’t, after all, even enter into their policy framework. The Fed is also determined to disregard increasingly entrenched inflation dynamics, convinced that its interest rate policy, quantitative easing programs and dollar neglect aren’t behind the upsurge in commodities prices. Amazingly, the Fed likes what it sees and, much to the markets’ liking, clearly prefers to stay the course.”
“Where would U.S. incomes, earnings and corporate cash-flows be today if it weren’t for the $4.5 TN increase in federal debt over the past 10 quarters? Ponder for a moment the liquidity backdrop in the Treasury market had the Fed not intervened in the marketplace with quantitative easing (#1) and “QE2” - in the process convincing the marketplace that the Fed had committed to operating as a reliable market “backstop bid?” What would be the state of the household balance sheet today if not for the unprecedented fiscal and monetary policy response? Is it sound analysis to trumpet the pristine state of the corporate balance sheet and celebrate the improving household balance sheet - when the Fed is doing unconscionable things to its balance sheet and the federal government is in the process of destroying theirs? How would global markets and economies be functioning these days had it not been for the almost $1.6 TN increase in international central bank reserve holdings over the past 12 months – or the $2.75 TN, 40%, growth in two years, to $9.45 TN?”
7) … World currencies, DBV, rose as the U.S. dollar, $USD, fell 1.3% to close at 74.86 (down 5.3% y-t-d). On the upside for the week, Commodity Currencies, increased, 1.6%, Emerging Market Currencies, 1.2%, the Brazilian Real, 2.4%, the New Zealand Dollar 2.0%, the Norwegian Krone 1.9%, the Swiss Franc 1.9%, the New Zealand Dollar, 1.8%, the Danish Krone 1.7%, the Euro 1.7%, the Australian Dollar 1.7%, the British Pound 1.7%, the Swedish Krona 1.5%, the Taiwanese Dollar 1.1%, the Mexican Peso 0.9%, the South African Rand 0.9%, the Indian Rupe, 0.9%, the Canadian Dollar 0.8%, the South Korean Won 0.8% and the Singapore Dollar 0.3%.
The currency yield curve, that is the ratio of the small cap value shares relative to the small cap pure growth shares, RZV:RZG, rose with the rising world shares … the chart of RZV:RZG suggest that the stock market has topped out and that the small cap shares will be leading world stocks, ACWI, down beginning first with the most capital intensive and credit dependent Russell 2000, IWM, and the emerging market small caps, EWX, and then the world small caps, VSS, such as the South Korea Small Caps, SKOR. One may consider creating a FINViZ portfolio to track these currencies: FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB, BZF, XRU, FXY, BNZ ,DBV, CEW
8) …. Commodities, DJP, rose on world chaos. Whitney McFerron and Jeff Wilson of Bloomberg report: “Corn stockpiles in the U.S., the world’s largest grower, are plunging to a 15-year low and may be smaller than the government forecast last month as rising demand from makers of feed and ethanol drive prices higher. About 40% of the crop is used to make ethanol as the government subsidizes the fuel additive and retail gasoline nears $4 a gallon.”
9) …Brazil inflation in March accelerated to fastest annual pace since 08, Bloomberg reports. Yet charts suggest that inflation destruction is commencing in Brazil Financial, BRAF, Brazil Small Caps, BRF, and Brazil shares.
10) … Volatility, VXX, rose.
Stocks: FXA, UUP, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB, BZF, FXRU, FXY, AUNZ, DBV, CEW, SLV, GLD, USO, DBC, BND, EDV, TLT, RCL, ACCO, TILE, PLCM, BEAV, WDC, FAA, ACWI, SCS, URI, KS, RCII, CMG, ZOLL, FGEM, CVCO, ISCA, WHR, SCIN, KRE, TUR, PKB, PICB, BWX, RWJ, RZV, CCX, NLY, FLAT, SPY, VT, JNK, FEIC, RWW, IWM, XRT