I … Zachs reports that the ISM Services Index decreased to 53.8 in June, lower than the expected level of 54.2, after remaining unchanged in April and May, following an increase to 55.4 in March. The index’s complement, the ISM Manufacturing Index decreased to 56.2 on last Thursday’s release after decreasing to 59.7 in May,
Chart shows US shares, VT, were up slightly on the day; and chart shows real estate, IYR, Russell 2000, IWM, house builders, XBH, and transports, IYT, led the stock market down today, on a EUR/JPY which rose 0.29%.
Real Estate, IYR -2.6%
Russell 2000, IWM -1.6 %; the chart of the Proshares 200% inverse of the Russell 2000 value shares, SJH, shows they have risen 42% while the Russell 2000 have fallen 19% since April 24, 2010. The chart of the Russell 2000 value shares, IWN, compared to the Russell 2000, IWO, shows the value shares falling more rapidly than the growth shares since April 24, 2010.
Home Builders, XHB -1.2%
Transportation, IYT -1.1%; the chart of transports, IYT, and industrials, IYJ, shows that industrials have fallen more than transports since April 24, 2010; transports started to catch up some to their industrial peer today.
Since April 24, 2010, commodities have fallen drastically, with base metals, DBB, and oil, USO, having fallen 20%.
And since April 24, 2010, basic materials have fallen IYM, 20%, industrials, XLI, 19%; semiconductors, SMH, 16%, and real estate, IYR, 14%.
Chart shows European shares, FEZ, rose 2.4% and, Asian shares, DNH rose 2.0% today.
Chart of FEZ compared to the Euro, FXE, and the chart of DNH compared to Australian Dollar FXA reflects 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.”
II … Those short the market with the Proshares 200% inverse ETFs since April 24, have the following gains, all of which can be classified as debt deflation as the currency traders sold world currencies against the US Dollar on April 24, 2010; and as the Euro, FXE, started to sell off on concerns of Greece’s sovereign debt in November 2009.
SJH … 200% inverse of the Russell 2000 value shares 48%; gain comes from the Russell 2000 shares which have fallen on a rising interest rate spread between corporate bonds and government bonds and from the fall of the financial shares, IYF; the chart of IYF, compared to European Financials, EUFN, and the Russell 2000 value, IWN, shows a loss of 18%.
The fact that the inverse of Russell 2000 value shares is at the top of the returns list reflects the powerful decapitalization that has come to small US companies highly dependent upon credit liquidity. We are witnessing liquidity evaporation, that is a liquidity squeeze, destroying small capitalized companies. Small US companies will soon be swept off the cultural, economic and investment landscape, as “the juice”, that is the liquidity, that they use to finance accounts payable, stock inventory and meet payroll evaporates. This at a time when industrial production has been transferred overseas and encouraged by the Bush administration, Milton Friedman neoliberal based free trade policies. And at a time when municipal, state, and federal employment has grown on soaring government debt across the board. All of which has left us with a high cost service based economy that places the US Dollar, $USD, and US Treasuries, IEF, TLT, and ZROZ, on the edge of a debt deflation cliff.
BOM … base metals 42%; gain comes from carry-trade disinvestment due to China bank tightening that began in early April 2010.
SMN … materials 41%; likewise this gain comes from carry trade disinvestment from metal manufacturing, XLE, steel, SLX, energy services, OIH, and energy production, XLE. April 24, 2010 marked the end of the age of profitable basic material and natural resource investing.
SIJ … industrials 40%; gain comes from the European Sovereign Debt Crisis which began in late 2009, from credit tightening in China, and from rising interest rate spread between corporate and US government bonds, all of which lessens demand for industrial production.
SCO … crude oil 39%; gain comes from carry disinvestment from speculation in oil.
SSG … semiconductors 36%; gain comes from disinvestment from semiconductors which move dramatically at market turns.
BIS … Nasdaq Biotechnology 34%; gain reflects the end of the age of profitable investing in life sciences.
SRS … Real Estate 25%; only recently has this inverse started to perform. Real Estate, IYR, has been sheltered from disinvestment up until recently by the FASB 157 entitlement which enables financial organizations to value their mortgage-backed securities investments in real estate at mark-to-manager’s best estimate, rather than mark-to-market.
JPX … Asia excluding Japan JPX 25%.
EPV … Europe 20%; European shares have risen recently on a rising Euro, FXE, diminishing the return to those invested short.
III … The european sovereign debt crisis and debt deflation has created an investment for gold, GLD, which has risen 5% since April 24, 2010.
Gold has risen to the status of a currency; it is the sovereign currency as well as the storehouse of investment wealth.
Disclosure: I am invested in gold coins