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I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes currency deflation has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation. The chart of gold, $GOLD, reveals that with... More
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  • Will The Bear Market ETFs Recommence Their Rise At This Time? 0 comments
    Jul 14, 2010 8:16 PM | about stocks: CRED, NLY, ANH, IEF, TZA, FXE, SPY, EWZ, INP, FXI, BAB, RF, HBAN, ZION, FITB, STI, SMH
    I … Today’s Report

    In daily email briefing: “EUobserver reports that Slovak Prime Minister Iveta Radicova left Brussels yesterday without agreeing to the eurozone bailout fund or the loan to Greece.” This is a significant stumbling block for the European shares to move forward.

    The chart of the S&P, $SPX, hits 50 Day Moving Average at 1095 and stops, as European shares, FEZ, hits resistance at 34 and stops as well, as the EUR/JPY, FXE:FXY hits 50 day moving average at 113 and stops. The EURJPY is trading at 126.95. And the Euro, FXE, is trading a little up from yesterday’s close of 126.73 at 126.97. The Finviz chart of the Euro, FXE, shows that 127 and 128 are substantial resistance for the Euro. Monthly pivot point for the Euro is 126.7.

    Chart of $SPX; click on chart to enlarge

    Chart of FXE; click on chart to enlarge

    The Dow, ^DIA, failed to move forward; it broke even to close at 10,366; this is the apex of a broadening top pattern that goes back to February 18, 2010.  

    The Yen, FXY, is trading up from yesterday’s close at 111.98, to close at 112.20; which is well below its recent July 6, 2010 close of 113.19.

    For institutional investors, perhaps this a good time to re-enter a short position with TZA, which is 300% inverse of the Russell 2000, based upon the assumption that debt deflation that began April 26, 2010 when currency traders went short the world’s currencies and long the Yen, has recommenced. The Russell 2000, IWM, closed below support of 64 at 63.97.

    China shares, FXI, are off 0.9%, and Brazil shares, EWZ, are down 0.8% on a lower Real, BZF, which hit strong resistance in a double top and is off 0.3% today.  India, INP, is down 0.5% to close at 65.55, after hitting strong resistance at 66.

    The chart of the too-big-to-fail banks, RWW, shows a bearish lollipop hanging man candlestick at the convergence of the 50 day moving average and th 200 day moving average. Is the chart about to show a “death cross”? Its trading today at 29.33 is a little above a broadening top pattern that goes back to March 5, 2010 and January 11, 2010; RWW is today’s loss leader. 

    The bank stocks which have led the rally up are off significantly today. The chart of RF, HBAN ,ZION, FITB, STI shows these to be dramatically lower today from yesterday.

    Chart of RF, HBAN, ZION, FITB, STI; click on chart to enlarge.

    The chart of RF, HBAN, ZION, FITB, compared with the Russell 2000, IWM, for the period of April 26, 2010 to June 14, 2010, shows how the credit sensitive small cap US shares have risen and fallen dramatically in value with the bank shares.

    Chart shows that today’s bullishness in the semiconductors, SMH, failed, which closed 0.3% lower.

    Chart of SMH; click on chart to enlarge.

    Martin Crutsinger, of the Associated Press, AP Economics Writer, covered the June 22-23, 2010, Fed report which sank the market, VT, before shares recovered late in the day to break even. “Federal Reserve officials have a slightly dimmer view of the economy than they did in April, reflecting worries about how the European debt crisis could affect U.S. growth and job prospects. Fed officials said Wednesday in an updated economic forecast that they think the economy, as measured by the gross domestic product, will grow between 3 percent and 3.5 percent this year. That’s a downward revision from a growth range in their April forecast of 3.2 percent to 3.7 percent. The Fed said in the minutes of its June 22-23 meeting that its lower economic projections reflected “economic developments abroad” — a reference to the debt crisis that began in Greece and threatened to spread to other European countries.”

    We are now in our seventh day of decline in aggregate credit, AGG, which closed in a recent high on July 6, 2010 at 107.06.  Support for the stock market is lacking from the debt markets: it appears the whole financial structure, that is both equities and debt, has reached an impasse.

    II … The Age Of Debt Deflation And The Age of Competitive Currency Devaluation Has Commenced And European State And Finance Leaders Waived The Sovereignty Of States Within The European Union

    The European sovereign debt crisis intensified on April 26, 2010,  shortly after the US Federal Reserve QE facilities were terminated on March 1, 2010, as currency traders sold the world’s currencies against the US Dollar, $USD.  Carry trade investing flowed out of stocks world-wide with the greatest disinvestment coming to European shares, FEZ, particularly Spain, EWP, and the Russell 2000, IWM. Chart reveals that it was at this time pure value, RPV, shares fell more rapidly than pure growth, RPG, as European Financials, EUFN, led the way down. The chart of world shares, ACWI, pure value shares, RPV, and growth shares, RPG, shows the age of debt deflation commenced April 26, 2010. Then on June 1, 2010, the US Dollar fell lower, and on July 7, 2010 the Yen, FXY, fell lower introducing the age of competitive currency devaluations.     

    Chart of ACWI, RPV and RPG; click on chart to enlarge.

    Chart of EUFN; click on chart to enlarge.

    Crisis arose and governance changed. Jolted by a continuing slide in the Euro, FXE, soaring sovereign debt bond yields, and soaring credit default swaps, the EU Finance and State Leaders convened the Eurozone May 2010 Summit and announced European Economic Governance, seigniorage aid for Greece and called for a Monetary Union with seigniorage authority to issue eurobonds. In so doing they effected a bloodless coup where they waived national sovereignty. Sovereign nations are a principle of a bygone era. One is no longer a citizen of a nation-state; rather one is a resident in a region of global governance.  

    In June, 2010, the EU state leaders and finance leaders met and announced a debt union to create Euro bonds via the EFSF monetary agency. This monetary authority will have seigniorage authority to create bonds and have lending authority to make loans to Greece and other nations experiencing sovereign distress, based upon the premise that a default by Greece would likely wipe out the banking system of Europe, as both Germany and France hold large amounts of Greece sovereign debt.

    And yet another confirmation of growing democratic deficit, and loss of sovereignty in the Eurozone is the news that Ecofin edges towards compromise on federalized European financial regulation. EuroIntelligence reports that European economic governance is moving closer to becoming reality: European finance ministers decided to move a millimetre towards the European Parliament, by agreeing that the pan-European financial supervisory agency should be given decision powers during emergencies – but only if the member states is in flagrant breach of EU law. The European Parliament wanted much wider-ranging powers, including the powers by EU supervisors to take binding decisions during financial crises. This was rejected, among others, by Germany and the UK. The final legislation has to be worked out by an arbitration process between the Council and the Parliament, both of which have to approve the legislation. The FT quotes EU officials as saying that they hope a final deal could be ready by the end of this month. Uncontroversial is the European systematic risk board, while most of the controversy was about the three supervisory agencies – for banks, insurance, and financial markets. Parliament also wanted to move all of them of Frankfurt. The Council also accepted a proposal from the parliament, that the authorities should have the right to ban certain products and activities during emergencies.

    Debt deflation 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.”

    Since the currency traders sold the world’s currencies sold off on April 26, the US Dollar off on June 1, and the Yen on July 28, we according to the renown economist Ludwig von Mises are going to in the near future experience collapse of every currency, other than gold.

    Given global debt deflation and worldwide currency deflation the current stock market rally will be short-lived. And it is difficult to understand the average analyst S&P year-end projection of 1,250 reported by Bespoke Investment Group in their survey of analysts.  The S&P would have to move up 55 points from its current value of 1,095. I am projecting a year-end S&P value of well below 700; and I do mean well below. How far below is hard to say because, a fall in the S&P will be like a wildfire flamed by Santa Ana winds: the level decimation is totally unpredictable once the value goes below a 1,000.   

    III …  Not only is there lack of support from the credit markets, Perhaps We Are Entering Into …. ”The Age Of The End Of Credit” as:

    1) The Direxion 300% inverse of the 30 year government bond, TMV, is rising from a spiked bottom.

    2) The market has today has turned on the two major marketers of mortgage-backed securities:  Annaly Capital Management, NLY, was sold off today, and the chart of Anworth Asset Mortgage, ANH, is perhaps manifesting a double top, as the interest rate on the Ten Year US Government Note, $TYX, has been rising for seven days. ANH represents an excellent short selling opportunity for institutional investors.

    Chart of ANH; click on chart to enlarge.

    3) High yield securities are off: the chart of high yield securities, HYV, shows a dark cloud covering candlestick yesterday July 13, 2010; and the chart of high yield municipals, HYD, shows trading significantly below its recent high.   

    4) Build America Bonds, BAB, rose to resistance at 25.98 and is forming a bearish rounded ark pattern

    5) It looks like today’s jump in the corporate bond ETF, CFT, is short sell covering, a last grasp for lower rates, and what may turn out to be an evening star pattern, but this will take confirmation from tomorrow’s trading.  

    Chart of CFT; click on chart to enlarge.

    6) Tyler Durden reports Mortgage Applications Sink to 13 Year Low: ”The Mortgage Brokers’ Association reported that demand for loans to purchase U.S. homes sunk to a 13-year low last week, and refinancing demand also slid despite near record-low mortgage rates. As Reuters noted, “requests for loans to buy homes dropped 3.1 percent in the week ended July 9, after adjusting for the Independence Day holiday, to the lowest level since December 1996, the industry group said … Rock-bottom borrowing costs are helping borrowers with pristine credit to buy and those who still have equity in their homes to refinance.” Also, from the MBA release, “the average contract interest rate for 30-year fixed-rate mortgages increased to 4.69 percent from 4.68 percent, with points increasing to 0.96 from 0.86 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate increased from last week.”

    7) Perhaps Slovak Prime Minister Iveta Radicova opaqueness and silence is a harbinger of the death of credit.

    If stocks and bonds are both deflationary in the future, would not gold be a safe haven investment for the personal investor?

    Disclosure: I am invested in gold coins
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