I … Us stocks fell today on yesterday’s much weaker US existing home sales data, and the Federal Reserve report which said that “financial conditions have become less supportive of economic growth.” The central bank cited what it called “developments abroad” but didn’t mention Europe by name. The Fed says it will hold down rates to help a recovery; and much weaker US existing home sales data.
And world stocks, ACWI, fell on concerns of the European financial stocks, EUFN, which were centered on a BNP downgrade, Credit Agricole’s write offs, S&P’s raised estimate on Spanish banking losses.
II … Alan Zibel, of the Associated Pres reports that Mortgage rates fell this week to the lowest level on record, (as The US 10 Year Note rose parabolically on the perceived safety of US Government debt) giving consumers added incentive to lock in low payments on home purchases and refinancings. Mortgage company Freddie Mac said Thursday that the average rate for 30-year fixed loans sank to 4.69 percent, from 4.75 percent last week. That’s the lowest since Freddie Mac began tracking rates in 1971. The previous record of 4.71 percent was set in December. Rates for 15-year and five-year mortgages also hit lows. Mortgage rates have fallen over the past two months. Investors wary of the European debt crisis and the turbulent stock market have shifted money into the safety of Treasury bonds, driving down yields. Mortgage rates tend to track the yields on long-term Treasury debt.
III … Today’s ETF Report
Value shares fell more than growth shares indicating that the debt deflation that commenced April 26, 2010 is destroying the companies most sensitive to tightening credit, a strengthening yield curve and a deteriorating economy; as can be seen in the chart of IWN and IWO … … IWN and IWO
Chart of Direxion 300% inverse of the Russell 2000, TZA, rose 4.8% today.
The Chart of FXE relative to fxm, bnz, fxc, inr, fxa, xru, fxf shows that on April 26, 2010, we entered into the age of competitive currency devaluations which started with the onset of the current bear market which marked the beginning of debt deflation and Kondratieff Winter as currency traders sold out of carry trades globally, stimulating a massive disinvestment from stocks.
FXE +.14 to close at 122.86
FXY +.44 to close at 110.70
$USD -.04 to close at 85.76
TRANSPORTS had risen significantly in the June 7, 2010 to June 21, 2010 rally.
The chart of FXI, compared to EWJ, DNH, VTI, FEZ shows, for the last three months, it has held up better than Japan, Asia, the US and Europe; probably because of its previous US Dollar peg, comparative lack of perceived banking and sovereign debt issues, and a strong housing market. It is a resource driven country, not thought to be a debt driven country, and not subject to currency fluctuations up until yesterday, when it liberated itself from US dollar hegemony. In the last four days, Japan, EWJ, Asia, DNH, and Europe, FEZ, have fallen more than China, FXI.
Bespoke Investment Group reports Australia and Spain both have negative PEGs – Australia because it has a negative P/E and Spain because it has negative GDP growth; chart of EWA, shows it trades like FEZ.
Chart of DBU, JXI, GRID, XLU shows that International Utilities, DBU, is likely to fall the fastest of all the utility ETFs now that debt deflation is seriously underway again. Fixed income investors depending on utility income will be decimated by debt deflation, the chart of DBU, compared compared to DOO and ACWI Prior to the subprime collapse beginning in late 2007, DOO and DBU performed as well as ACWI; but now, since April 26, 2010, debt deflation is destroying the fixed income investor.
GOLD & MINING (Gold mining stocks are likely to continue to detach from the price of gold as the bear market intensifies)
Your blog author, theyenguy, believes that these are topping out, and represent a good short selling opportunity for the institutional investor. I also believe that ZROZ is topping out; and that lacking debt support, liquidity support, they will fall lower when ZROS falls lower. Yahoo Finance chart of GDXJ and ZROZ.
Gold is the sovereign investment; gold is the sovereign currency, theyenguy says. Gold is the best investment to preserve one’s wealth now that debt deflation has commenced.
perhaps it is time for institutional investors to go 200% inverse of the gold mining stocks.
DEBT It is significant that US Treasuries fell in value on a day when stocks fell. Investors are beginning to see risk in holding US Sovereign debt.
The Yield Curve, $TYX:$TNX, has been increasing since April 26, 2010, when the currency traders massively sold world currencies, causing disinvestment from stocks globally, ACWI, and commencing global debt deflation.
IV … Expanding bond market interest spreads confirm a bear market has indeed recommenced; the widening interest rate spreads make borrowing more costly, and deteriorate corporate earnings, thereby reducing stock prices.
Jody Shenn reports the extra yield investors demand to hold corporate bonds instead of government debt was unchanged at 194 basis points, or 1.94 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.002 percent.
The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, climbed 1.6 basis points to a mid-price of 117.12 basis points in New York yesterday, according to Markit Group Ltd.
The Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings increased 2 basis points to 127 in London today, Markit prices show.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was little changed at 130 basis points in Singapore.
In emerging markets, the indexes typically rise as investor confidence deteriorates and fall as it improves.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
In emerging markets, the extra yield investors demand to own bonds relative to government debt rose 5 basis points to 325 basis points, the highest since June 11, according to JPMorgan’s Emerging Market Bond index.
Grupo Bimbo SAB, the world’s largest bread maker, sold $800 million of 10-year dollar bonds in its first international issue. The 4.875 percent notes due in 2020 from the Mexico City- based company priced to yield 4.91 percent, or 180 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.
V … Summary:
The Bear Market that began April 26, 2010, has recommenced on an unwinding yen carry trade; the disinvestment comes from the Federal Reserve’s statement that financial conditions are less supportive of growth, and from contagion of the European Sovereign Debt Crisis spreading to the European Financial stocks as is seen in the Moody’s downgrade of BNP Bank. This bear market is unlike any other, we have entered into the “mother of all bear markets”, that being Kondratieff Winter. The only currency that can withstand the devaluation that is coming via debt deflation is gold.
The chart of the EUR/JPY and ACWI and IWM, shows a three-day fall of 6% in IWM, and a 5% in ACWI, on a 2% downturn of the f the EURJPY.
Disclosure: I am invested in gold coins