Financial market report for October 17, 2011
1) … The stocks that rallied the most since October 3, 2011 fell the hardest today, as the German Finance Minister played down hopes for a comprehensive Eurozone rescue plan.
Associated Press reports Stocks Slide As Germany Cools Hope For Debt Deal. And Bloomberg reports Germany Shoots Down 'Dreams' of Swift Crisis Fix. Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit. German Chancellor Angela Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, Merkel’s chief spokesman, said at a briefing in Berlin today. The search for an end to the crisis “surely extends well into next year.” The Euro, FXE, fell 1% on these reports today.
Tyler Durden reports Moody's Announces That France's Debt Metrics Have Deteriorated And Are Now The Weakest Of All Aaa-Rated Peers.
Between The Hedges relates Rheinische Post reports The structure of the European rescue fund would be undermined if France were to lose its AAA credit rating, citing Lueder Gerken, head of the Centre for European Policy, a Freiburg, Germany-based think tank. A cut in the rating would decrease the capacity of the European Financial Stability Facility by 35%, citing calculations by the CEP. Germany would have to increase its guarantees to the EFSF to 317 billion from 211 billion euros.
Non basic material rally leading stocks turned lower today; these include mobile home builder, CVCO, Russell 2000 value company, CCO, gaming stock, SFLY, consumer discretionary, RCL, PII, Business Services, URI, Health Care Information Services, CERN, Transportation Leader, R, Truck Manufacturers PCAR, and NAV, Retailer Build A Bear Workshop, BBW, Technology, Plantronics, PLT, Health Care Information Services, CERN, fell lower.
The emerging market shares, the basic materials, and the banking shares were the one which had rallied the most starting in October. They were the ones which fell the most today: EEM, 3%, KRE, 4%, WCAT, 2%, COPX, 5%, ALUM, 4%, KOL, 3%.
We are witnessing a competitive currency deflation, credit deflation, emerging market, banking, and basic materials bear market getting underway again, as the seigniorage of currencies, debt, banking, and basic materials, such as copper, iron, and coal is failing. Bloomberg reports U.S. Banks Fall as Wells And Citi Revenue Slump. U.S. banks fell after Citigroup Inc, C, and Wells Fargo & Co, WFC, the nation’s third and fourth largest lenders, said quarterly revenue dropped amid economic weakness and market turmoil linked to Europe. Those who went short these 200% and 300% ETFs profited URTY, EET, UYM, EDC, TNA, MATL were among the most significant fallers.
The currency demand curve, RZV:RZG, manifested bearish engulfing, suggesting that competitive currency devaluation is underway again. The US Dollar 200% ETF, UUP, rose to 200 day moving average. An inquiring mind asks, just how much higher will the US Dollar, $USD,will rise before it too succumbs to debt deflation, that is currency deflation? Will it rise to 77.5 78.0 or 78.5, 79.0, 79.5 before it too falls lower?
2) … Trading activity in the world shares, ACWI, and world small cap shares, VSS, evidenced a market turn and short selling opportunities abounded.
In a bear market, one sells in strength; just as in a bull market one buys in dips. Given the accumulated strength, one might consider short selling. I personally recommend that one buy and take possession of gold bullion.
Networking shares. IGN, rise made for an excellent short selling opportunity; chief among these is Fusion-io, FIO, a small cap company.
The internet retailers, HHH, might be considered for short selling. These include GOOG, AMZN, EBAY, PCLN, YHOO, The chart of GOOG, AMZN, EBAY, and YHOO, all showed prime for short selling today.
The strength of the recent rally is seen in China Financials, CHIX Emerging Markets, EEM, Banking, KRE, and Basic Materials, XHB, IYM.
The strength of the recent rally is also seen in the Baltic Dry Index, $BDI, the Currency Demand Curve, RZV:RZG, the Optimized Carry ETN, ICI, the Japanese Large Shares Command Ratio, EWJ:JSC, the ratio of basic material shares to commodities, XHB:DBC, and IYM:USCI, the ratio of the wood manufacturers to lumber, WOOD:CUT, the ratio of energy service companies to oil, OIH:USO, the ratio of industrial metal manufacturers to base metals, CRBI:DBB, the ratio of agricultural stocks to agricultural commodities, CRBA:JJA, and The Morgan Stanley Cyclicals Index, $CYC.
Shippers, SEA, turning lower included this group NMM, TEU, EXM, GLF, HOS, GSL, BALT, ISH, TGP, TNK,
Yen carry trades showed signs of unwinding as DBV:FXY, and CEW:FXY, turned lower today.
The ratio of gold mining stocks to gold GDX:GLD suggests that the gold mining stocks will be turning lower, disconnecting again from the price of gold.
The ratio of the gold mining stocks to the 30 Year US Treasuries, GDX:EDV, turned lower suggesting that both the HUI Precious metals and US Government Bonds, will be turning lower.
The highly credit dependent Russell 2000, IWM, turned strongly lower as banks KRE fell lower. A short selling opportunity opened early in the day and persisted all day long.
The leading world banks, as a group, fell strongly lower; these include BSBR, ITUB, BBD, BMA, BBVA, BFR, WF, UBS, RBS, STD, DB, LYG
A number of credit service companies fell lower including PHH, AXP, NNI, COF, SLM, ECPG, NICK
Farm and Agricultural Equipment fell strongly lower these included MTW, CMCO, TEX, AGCO, CASC, ASTE, LNN, JOYG, CNH, CAT, DE, NC, CMI
A number of automobile part manufacturers fell lower AXL, DAN, JCI, TEN, MGA,
Leading Technology turned lower SKYY, IGN, FONE
Debt shares, PSP, and JNK turned lower.
National Bank of Greece, NBG, fell 6%, taking the European Financials, EUFN, 4% lower.
The Utilities, XLU, appear to be topped out; with CenterPoint Energy, CNP, rising above many today.
Between the Hedges reports China Iron Ore Spot continues to pick up downside steam, falling -20.1% since February 16th. This suggests that the seigniorage of China credit is failing and growth in China has slowed.
Also, the European Sovereign Debt Crisis, is playing a significant part in deleveraging commodity currencies, CCX, the Australia Dollar, FXA, the Brazilian Real, BZF, the South Africa Rand, SZR, and the Canadian Dollar, FXC. Leading Mining Stocks, FCX, VALE, BHP, CLF, AA, SCCO, TNA, POT, CF, plummeted.
ETFs trading lower today included
3) … Currency deflation is poised to take debt lower as sovereign stress comes once again to sovereign debt.
The chart of world government bonds, BWX, and the emerging market bonds, EMB, suggests that these have reached a rally high;
4) …. .The Seigniorage Of Debt And Materials Fails Once Again … Soon The Seigniorage Of Diktat Will Emerge
The ponzi financing that pervaded Neoliberalism, with subprime lending, and GSE lending may resurface under Neoauthoritarianism, possibly via Obama administration diktat. The WSJ reports New Mortgage Plan Floated. Underwater Borrowers Current on Payments Would Get Help. State and federal officials are pushing a plan that could help some "underwater" borrowers get refinancing assistance in the latest government bid to break a legal impasse with big banks over alleged foreclosure abuses and ease problems in the housing market. The proposal was raised in a meeting last week between government negotiators and giant lenders as part of an effort to settle allegations of questionable foreclosure practices. Discussions are still fluid and any final outcome is uncertain. Talks between government officials and the banks are expected to continue this week.
In neoliberalism seigniorage came via securitization of debt as well as the ZIRP policies of the US Federal Reserve.
MarketWatch reports Lacker said he did not support the Fed's decision to reinvest proceeds from maturing agency mortgage-backed securities into the agency MBS market. Previously, the Fed had reinvested the proceeds into Treasurys. "It is simply inappropriate, in my view, for a central bank to channel credit toward some economic sectors and away from others,"
Irvine Renter reports on the devastating aftermath of mortgage equity withdrawl. The US economy and housing market is suffering due to the excessive debts taken on during the housing bubble. Heloc dependency has been terminated by market forces and the HELOC economy has collapsed. Hagerstown was taken over by Ponzis, (and now, I comment that it has gone bust). The few who didn't participate get to pay the price in government bailouts and lowered property values. Mitra Kalita reports in Housing's Job Engine Falters Hagerstown, MD, ranked among the highest for positive mortgage equity withdrawal—meaning people pulling cash out of their houses. Now, it ranks among the most negative, meaning families are defaulting or paying down debt, according to Moody's Analytics. Irvine Renter continues, Once some other sector creates jobs, new households will form which will in turn create demand for real estate. With fresh demand for real estate, housing employment will start to recover, and the demand will snowball from there. The catalyst will not be housing. It must start in another sector of the economy.
Unfortunately, the economic, investment, and political tectonic plates have shifted the world into Kondratieff Winter. The world has moved out of the Milton Friedman Free To Choose Regime of Neoliberalism and into the Beast Regime of Neoauthoritarianism. This monster will manifest as regional economic government combined with corporatism, that is statism, in all of mankind's seven institutions and ten world regions.
Freedom, Choice, Free Trade, Prosperity, belonged to the Age of Leverage. Now Diktat, Structural Reforms, Austerity Measures, Protectionism, and Debt Servitude are de rigueur in the Age of Deleveraging.
Mike Mish Shedlock writes Protectionism Cannot Bring Prosperity where makes the point that exported jobs will never return; and tariffs will destroy existing jobs.
I relate that the seigniorage, that is the moneyness, of credit and basic materials such as coal, iron, and copper has failed. The seigniorage of diktat is commencing. Irvine Renter often reports on HELOC abusers, that is borrowers who withdrew more money in HELOCs and refinances than the house is currently worth. I ask where did that money go, into trips to Las Vegas, investment property in Reno, cosmetic surgery like boob jobs? Did some of it make it into buying and holding gold coins?
I relate that In 1974, the 300 hundred of the world’s elite met as the Club of Rome, and presented regional economic government as the solution for the chaos that would come from deleveraging and disinvesting that comes with the failure of Mr Friedman’s Free to Choose dream. Their Clarion Call, has been heard by globalists such as Angela Merkel and Nicolas Sarkozy, who in their August 2011 Communique, called for a true European economic government.
Sovereign armageddon, that is a credit collapse and global financial breakdown, will come out of Gotterdammerung, the clash of the gods, that is the European leaders and the investors together with the rating agencies. This will result in the loss of national debt sovereignty, and extinguishment of state fiscal spending capability.
Sovereign crisis requires a sovereign solution. One Leader, the Sovereign, and his banker, the Seignior, will arise to speak for and to the Eurozone, which will be transformed into a Federal Europe, as leaders meet in summits and wiave national sovereignty, and implement a Fiscal Union, empower the ECB as a bank, and develop a common European Treasury. Seigniorage, that is moneyness, will no longer be based upon debt, but rather will be based upon the diktat of structural reforms, austerity measures and debt servitude; people will be amazed by this, and place their faith in it, and give it their full allegiance.
Tyler Durden reports Chinese GDP Prints at 2-Year Low as Inflation Still Persists This to me indicates that the ponzi financing that has existed in China has pumped huge amounts of money into the economy, inflating prices.
Price inflation is on the way up; but it may mitigate. The US Bureau of Labor Statistics reports The Producer Price Index, PPI, for finished goods rose 0.8 percent in September, seasonally adjusted. This is largely due to the lingering effect of quantitative easing, which is now exhausting. It’s like looking in the rear view mirror. The question is will a rising 10 Year Interest Rate, $TNX, and a rising 30 Year Interest Rate, $TYX, from deleveraging out of US Government bonds, ZROZ, EDV, TLT, caused by China retribution for being labeled as a currency manipulator, and resulting flight out of Treasuries, seen in the Flattner ETF, FLAT, falling, and the Steepner ETF, STPP, rising, cause price inflation? Some say so, but I am not so sure.
For people using world major currencies, DBV, as well as people using emerging market currencies, CEW, there may be price inflation as their currencies sink and they have to buy commodities priced in dollars.
But for those with dollars, price inflation may mitigate. I see not only a credit collapse, but a commodity collapse as well. Commodities, DBC, will be falling lower on lower commodity currencies, CCX. The major problem will be dollar funding for countries that go out and buy commodities in dollar as credit liquidity evaporates. The CME Report warns in timely fashion Liquidity in Europe begins to evaporate.
And the major problem will be for those with no income or reduced income to buy consumer goods. The price of these will indeed be steep to those who don’t have the income to buy them.
Between The Hedges relates on Municipal Debt in China. China Daily reports China's public road projects have stalled because of a lack of funding over the last two or three months in some provinces, citing research by the Ministry of Transport. Road completion may be about 20% below plan. Public road construction may face greater funding pressures in Q4. Reports by 16 provincial authorities showed they owed a combined $199 billion for the construction of toll roads. Only 4 provinces and municipalities including Beijing recorded profits from toll roads, according to the report.
China Business News reports Chinese rail projects are being halted on cash shortages. Over 10,000 km of building work has been halted, citing Wang Mengshu, a China Railway Group engineer. And Coal stockpiles at five major Chinese power companies rose to more than 60m tons as of the end of September, citing a person from one of the companies. Average daily coal consumption fell as much as 16% to about 3.3m tons.
The fantastic amount of securitization of local government debt, basically municipal debt, in China is proving to be highly inflationary. And now, coal is piling up at utility companies as they have to stop producing electricity because they are not allowed by governments to pass on higher raw material costs.
5) … Open Europe reports German Finance Minister played down hopes for comprehensive eurozone rescue plan and Osborne says UK taxpayers may have to contribute more to resolve the crisis.
At Saturday’s G20 summit in Paris finance ministers reiterated their call for a decisive and comprehensive solution to the eurozone crisis, but differences still remain between France and Germany over the level of Greek debt write-downs and a bank recapitalisation. However, speaking in Düsseldorf this morning, German Finance Minister Wolfgang Schäuble said, “European governments will not present an ultimate solution for the sovereign debt crisis at an upcoming European Union summit”, according to the Telegraph live blog.
Meanwhile, Chancellor George Osborne has raised the possibility of UK taxpayers having to make a bigger contribution to the eurozone’s rescue package through the IMF. He said, “We have indicated our willingness to consider our position on resources for the IMF,” although he added that “additional IMF resources must not be a substitute for the eurozone committing its resources to supporting its own currency.” The UK’s potential liabilities via the IMF are capped at $20bn (£12.6bn), of which around a quarter has been deployed to date.
The WSJ reports that at the summit, the idea of boosting the IMF’s resources with funding from the emerging economies, China and Brazil in particular, was rejected by the finance ministers from established economies, who insisted that the European debt crisis must be resolved by Europeans themselves. Separately, the Sunday Telegraph reported that there were “heated exchanges behind closed doors”, as the UK, US and India rebuked European leaders for acting too slowly and in particular for not mobilising the full lending capacity of the ECB, which is fiercely resisted by Germany.
EUobserver reports that Jean-Claude Trichet, the outgoing head of the ECB, has reiterated his support for a change to the European Union treaty to allow for the outside imposition of economic policy on a member state. "It is necessary to change the treaty to prevent one member state from straying and creating problems for all the others…to do this, one even needs to be able to impose decisions", he said.
Open Europe’s Pieter Cleppe appeared on Sunday’s De Zevende Dag, Belgium’s morning politics show, discussing the eurozone crisis. He argued, “In order to keep the eurozone up and running until the end of 2014, it requires multiplying the eurozone’s bailout fund, which has just been doubled, by fivefold, giving it an effective firepower of about €2.3tr. This is not democratically feasible, and it will not solve the underlying problem of economic imbalances within the eurozone.”
Telegraph FT FT 2 FT 3 WSJ WSJ 2 WSJ 3 EurActiv European Voice EUobserver Independent Europe 1: Trichet CityAM Times Irish Times ARD Zeit Bild El País Welt Welt 2 Welt 3 Welt 4 Handelsblatt TS De Zevende Dag: Cleppe Mail Sun Le Figaro BBC FT Weekend FT Weekend 2 Sunday Times 2 Sunday Telegraph WSJ Saturday’s Times Saturday’s Telegraph Saturday’s Independent Saturday’s Guardian Welt: Kremp Zeit: Geis FT: Munchau FT Editorial Telegraph: Evans-Pritchard WSJ Review&Outlook WSJ: Stelzer Sunday Telegraph: Halligan Sunday Telegraph: Bootle FT Weekend: Barber
Dutch Economy Minister Maxime Verhagen has argued in De Volkskrant that the European Commission should be given the power to force all EU member states, not just eurozone countries, to address their economic problems, adding, “National competences should remain national. But the measures shouldn’t be free of consequence. EU countries should be judged on the result.” De Volkskrant
In the Sunday Telegraph, Business Editor Kamal Ahmed argued, “There are at present at least 38 pieces of European regulation that have either been passed or are being formulated in Brussels which will have an impact on the UK’s financial services sector…We are in danger of sleepwalking to a new crisis – a crisis of regulation…It is time this Government put its foot on the regulatory ball and said enough is enough.” Open Europe research Sunday Telegraph: Ahmed
François Hollande will be the French Socialist Party’s candidate for next year’s presidential elections, after he won the second round of a primary election against Martine Aubry, the daughter of former European Commission President Jacques Delors. Le Monde Les Echos BBC: Hewitt Repubblica Le Figaro FT WSJ
Ceske Noviny reports that Czech Agriculture Minister, Petr Benld, has rejected European Commission plans to introduce a €300,000 ceiling on direct payments to farmers under the EU’s Common Agricultural Policy, arguing that it would endanger the competitiveness of Czech farmers.
The Independent on Sunday reported that an international team of scientists will today kick-start an EU-funded study into the impact of global warming on the spread of allergies. The article notes that the study will cost around €3.5m. Independent on Sunday
Stocks: NMM, TEU, EXM, GLF, HOS, GSL, BALTC, TGP, TNK, BSBR, ITUB, BBD, BMA, BBVA, BFR, WF, UBS, RBS, SAN, DB, LYG, PHH, AXP, NNI, COF, SLM, ECPG, NICK, MTW, CMCO, TEX, AGCO, CASC-OLD, ASTE, LNN, JOY, CNH, CAT, DE, NC, CMI, AXL, DAN, JCI, TEN, MGA, SKYY, IGN, FONE, JNK, PSP, BWX, EMB, FCX, VALE, BHP, CLF, AA, SCCO, TNA, P