The Euro, FXE, gapped open higher in morning trading to 128.40 and closed at 128.87. The Yen, FXY, raced higher in morning trading to match its trading peer’s gains, and in doing so moving above its recent high of July 6, 2010 high of 113.19 to trade at 113.24. The euro-yen carry trade liquidity remained on during the day, it maintained its Stockcharts.com value of 1.13. Yahoo Finance shows the EUR/JPY closed at 112.89. As a result the European shares, FEZ, rose 0.7%. However, the US shares battled downdraft in the bank shares, KBE, and a bevy of bad economic reports to basically recover even to a little lower. Bond charts definitely indicate that we are entering into “the end of the age of credit”.
Currencies up on the day:
Currencies down on the day:
Some carry trades have proven shrewd
FXF:FXA; click on chart to enlarge.
FXF:FXC; click on chart to enlarge
Base metals, DBB, +0.7%
Oil, USO, -0.3%
Gold, GLD, -0.1%
Gold stocks, GDX, closed at down at -0.2% at 50.12, which above pivot point of 49.99; and above strike price of 50. Joe Kunkle writes Option Traders Bet on Sell-Off in Gold Miners
Silver, SLV, -0.1%
Agricultural commodities, DBA, jumped 1.5% to close at its 200 day average.
Volatility, VXX; closed at 25.77 — above 25 indicating risk to investing long stocks.
Stocks fell in early morning trading as Angela Moon of Reuters reports that an unexpected fall in factory activity and a third straight month of decline in producer prices raised concerns about deflation, cooling investors’ enthusiasm about earnings season that had lifted the stock market off its recent lows in early July. Bank stocks, KBE, erased their pre-market gains and fell as investors fretted about JPMorgan’s sober assessment of the economy, boding poorly for Citigroup, C, and Bank of America, BAC, which report earnings on Friday. Banks, KBE, closed down 0.5%
Stocks, ACWI, recovered from their hard early morning downdraft, and closed at 40.50, up 0.1% to resistance.
China, FXI; fell below support of 40 to close at 39.86 down 1.5%. Shani Raja and Akiko of Bloomberg report Asian Stocks Drop As US Fed Cuts Forecast; China Growth Slows … Mayumi Otsuma of Bloomberg in Washington Post reports BOJ Says Japan’s Growth Will Slow Next Year, Keeps Benchmark Rate At 0.1%.
Asian, DNH closed at 51 … which is up 0.4%.
Japan, EWJ closed at 9.59 … which is down 0.8%.
Banks, KBE closed at 24.79 … which is down 0.5%.
Too Big Too Fail Banks, RWW closed at 29.11 … which is down 0.9%.
Russell 2000, IWM, failed to break out above 64.25; and closed today at 63.55 … which is down 0.9%
Real Estate, IYR, closed at 49.47 … which is down 0.2%
Industrials, XLI, closed at 29.04 … which is down 0.1%
Semiconductors, SMH; closed at support at 28.12 … up 0.1%
Basic Material, IYM, closed at 57.26 … down 0.4%
Brics, EEB, closed at 39.27 …. down 0.7%
Brazil, EWZ, closed at 66.15 … down 0.4%
Australia, EWA, closed at 20.71 … down 0.1%
India, INP, closed at 65.09 … down 0.7%
Canada, EWC; closed at 26.47 … up 0.6%
Mexico, EWW, closed at 50.55 … down 0.1%
S&P, SPY; failed to break out above resistance at 110.00; and closed at 109.68 … up 0.1% … note that it failed to hit option strike price – it closed just under strike price.
Dow, DIA, failed to break out from yesterday’s 103.75; and closed at 103.70 which is down 0.1%.
Value stocks, RZV, closed down 1.1% …. Growth stocks, RZG, closed down 1.6%.
Europe, FEZ; rose 0.7% today on the higher Euro, FXE. But the rise in FEZ is not confirmed by a rise in the European Financials, EUFN, which fell 0.3% lower.
Bond charts definitely indicate that we are entering into “the end of the age of credit”.
Aggregate Debt, AGG, jumped above its recent July 6, 2010 high of 107.06 to close at 107.10; and in so doing manifested a questioning harami.
High Yield Debt, HYG; the chart looks “primed for another fall”; I recommend that institutional investors go short HYG at this time.
High Yield Municipal Bonds, HYD; the two recent lollipop hanging man candlesticks relates that the municipal bonds have topped out. I also recommend that institutional investors go short HYD at this time; click on chart to enlarge.
Build America Bonds, BAB, the massive lollipop hanging man candlestick and today’s rise to resistance at 26, indicates that a top has been made in Build America Bonds. And yes, BAB, is a good short selling opportunity for institutional investors.
20 to 30 Year US Government bonds, TLT,
US Treasury Ten Year Note, IEF; investors are seeking the alleged safe haven of short-term US Treasury debt.
US Government Short Term Bonds, SHY, reflect the Deborah Levine MarketWatch report that yields on 2-year US Government note, $UST2Y, fell as low as 0.56%, breaking through the previous record low set in late June. Note the hammer candlestick close at 84.05 which is below the high of 84.07. The two year notes are putting in a double high; click on chart to enlarge.
Corporate Bonds, CFT; investors are seeking the safe haven of corporate bonds; the interest rate spread between corporate bonds and US Treasuries is reasonable, causing corporate bonds to rise.
A sound investment maxim is in a bull market to buy on dips and in a bear market to sell on rises.
We entered a “debt deflation” bear market on April 26, 2010; and a “competitive currency deflation” bear market on July 1, 2010; therefore it makes sense to sell on price rises like the one that has been ongoing in the Russell 2000, IWM, since June 28, 2010 where it rose from a value of 59.82 to today’s price of 63.97.
I’ve been consistent in recommending that institutional investors go short the Russell 2000 by investing in the Direxion 300% bear market ETF TZA.
And I’ve been consistent in investing to personal investors that they invest in gold, as it is the only option for households in a debt deflationary economy as it has arisen to be the sovereign currency.
Since clearly we have entered into ”the end of the age of credit”; and in as much as TMV has double bottomed and is on the way up, today’s dip in TMV, is a good place for the institutional investor, to slowly add investments.
Jim Kuhnhenn of the Associated Press reports that the vote to end debate on financial regulation was 60-38, the minimum needed to overcome a filibuster. But that ensured that the bill has the votes for final passage, which could come later Thursday. Its ultimate impact, however, will depend on the government regulators assigned to implement it. The legislation is the result of a year’s worth of partisan struggles and delicate cross-party courtships that at times promised more votes but in the end delivered barely enough.
Richard Suttmeier in SeekingAlpha reports courtesy of ThomsonReuters, The COP Reports On the TARP Warp: The Congressional Oversight Panel reports what I have been writing about over recent quarters: That TARP has been a drag on community banks, as the 690 small banks that begged for tax payer money now wish they did not. Each quarter more and more community bank TARP recipients are not making TARP dividend payments. The number is up to 91 banks.
Most of these community banks should not have been qualified to receive TARP because of their overexposures to C&D and CRE loans. The FDIC knew about these exposures and have been collecting data on these exposures, but rubber-stamped the bailout money because community banks had and still have capital shortages. Now the FDIC has broader powers even after they ignored the powers that they had since December 2006. Go figure!
More that 50% of small banks just can’t lend because of souring loans for commercial real estate and high unemployment. On Tuesday the Labor Department reported that job openings dropped in May as layoffs edged higher. This provides further evidence that companies are reluctant to hire. The COP reports that hundreds of small banks are expected to fail by the end of next year.
According to COP small banks can’t afford to make TARP dividend payments and that these payments will nearly double in 2013, as “The Great Credit Crunch” gets pushed out yet another year.
As I have been saying, community banks play a critical role in lending to small businesses, which is the life blood of economies on Main Street, USA. Without new C&D and CRE loans construction jobs cannot grow. Meanwhile, the “too big to fail” banks are bigger and new financial regulations do not end “too big to fail”!
Robert Wenzel of EconomicPolicy Journal in article Philly Fed Business Outlook Summary: Optimism Has Waned relates: More negative news from the edge of the double-dip. The Philly Fed’s Diffusion Index of current manufacturing conditions (for the Philadelphia region) is at 5.1, down from 8 last month. Although still positive, this is the second straight month of decline. Most alarming the new orders index declined into negative territory, as it fell 13 points. This is the first move into negative territory in 12 months. Tyler Durden covers this as well in article Latest Economic Deterioration Confirmation: Philly Fed Plunges To 5.1, Consensus At 10.0, Previous At 8.0
Tyler Durden writes European Short-Term Funding At Worst Levels Of 2010 For all that talk about good news out of Europe, it would be great if there was any “good” news to actually report, instead of just ECB’s ongoing monetization of ever more sovereign debt at higher and higher yields, and the Eurozone regulators pretending its insolvent banks are healthy. Case in point - every single overnight funding indicator is now at the worst levels of 2010, including Libor, Interbank Deposit Rates, Repos and Commercial Paper. Nobody is willing to drink the European stability Kool Aid – the entire continent continues to be locked out when it comes to the ever critical ST funding market. As all this debt accumulates and needs to roll, it means the ECB will soon be required to provide not only long-term but short-term funding. In the meantime, the market continues to buy euros from Goldman. (I comment that the short-term indicators have not yet shown up in the Ted Spread, $TED.)
Tyler Durden writes in article Spain Auctions Off €2.999 Billion 15 Year Issue Above 5% Yield: The just completed auction of Spanish 2025 obligations for just under €3 billion, came at a 5.116% yield, a substantially worse level than the last auction as of April 22, which was placed at 4.434%. The only redeeming feature was that the bid to cover increased from the prior 1.79 to 2.575, after €7.722 billion worth of bids noted an interest. Somehow we get the feeling the ECB has been busy this time around, as have been the Chinese, which were instrumental in last week’s 10 Year auction. According to Market News, “Spain is “very confident” it will meet its forthcoming July redemption payments, given its cash position at the Bank of Spain.” Furthermore, tax receipts are running in line with expectations, adding to the positive feeling. This is all wonderful, and occurs on the back of a just released Barclays report which (to be posted shortly), which notes that Spanish Cajas alone will likely require €36.2 billion euros to plug a capital shortfall. Luckily the ECB and China are more than happy to keep providing the funds necessary to plug this hole.
Robert Wenzel of EconomicPolicy Journal provides the details of the end of the Henry Paulson, Goldman Sachs, GS, Fabulous Fab saga in article Goldman Sachs Settles.:
Disclosure: I am invested in gold coins