Financial market report for August 30, 2010
Japanese shares, EWJ, fell 0.32% to trade at 9.49; the Bank of Japan’s loan efforts have failed to raise the market share value of EWJ.
Currency traders reentered their short of the Swedish Krona-Japanese Yen carry trade, causing Sweden, EWD, to fall 3.1% lower. The direction of the FXS:FXY carry trade is down, taking Sweden’s shares lower.
With the Yen, FXY, falling from 117.63, to today’s 117.11; the world has entered competitive currency deflation. Currencies will all be tumbling lower together, albeit a different rates over time.
World stocks, ACWI, fell lower to 39.27.
Bonds, BND, today up to 82.75. But a high in Total Bonds was likely achieved August 24, 2010 when, when BND rose to 82.80.
Semiconductors, SMH, fell strongly. Just as there is a yield curve, which has been flattening since August 11, 2010, i.e. the 30-10 yield curve, $TYX:$TNX, going flatter, I perceive the personal computing curve which has been steepening since March of 2010, will be flattening as semiconductors falls relative to hard drives, SMH:STX.
Chart of the 30-10 Yield Curve
Chart of SMH relative to STX
Semiconductors will be a stock market loss leader. I see the bottom falling out of semiconductors, SMH. These started to fall heavily on August 19, 2010, and went ex-dividend on August 22, 2010. At that time they accelerated their loss compared to compared to the Russell, 2000, IWM, Banks, KBE, Basic Materials, XLB which is seen in the chart of SMH, IWM, KBE, and XLB.
The chart of semiconductors, SMH, shows a recent bearish engulfing candlestick; then a one rally on August 27, 2010, that came by yen carry trade investing, and a sell off today to close at 24.63.
Pablo Gorondi, of the Associated Press writes that oil, $WTIC, falls below $75, on crude demand uncertainty and after retracing some of Friday August 27, 2010 meteoric carry trade based rise; USO fell 0.94% to 33.10.
US Government Bonds, TLT, are up 1.91%, to close at 107.37, recovering some of their terrific loss of August 27, 2010, when the yield curve flattened on the Federal Reserve Chairman’s announcement of a likely purchase of even more mortgage-backed securities, which sent bond prices sharply lower and interest rates higher.
The trend will be both stocks AND bonds lower, ... with semiconductors leading stocks down; ... and the longer out Treasuries, TLT, experiencing more loss than the US Ten Year Note, IEF.
The 30 Year to 10 Year Yield curve, $TYX:$TNX, will be flattening even more, decimating those invested in long-term US Government bond funds such as PIMCO Long-Term US Government B, PFGBX.
Systemic risk is quite high. Liquidity evaporation could happen quite easily, resulting in a liquidity crisis, where there may not be enough buyers of investment securities to meet sellers demand. Because of this risk I am invested in Gold bullion, GOLD. I believe that out of the soon coming liquidity crisis, American Express, AXP, will be integrated with the US Treasury, through a Presidential Executive Order, or will become reconstituted as a bank, and be integrated with the Federal Reserve, and that what little lending occurs, will take place through this state corporate combine overseen by a Credit Seignior, that is a lending boss.
Those interested in short selling may want to consider TBT as well as SSG, SMK, SJH, and EPV as seen in this combined Yahoo Finance Chart, and TMV as well SOXS and FAZ as seen in this combined Yahoo Finance Chart. I recommend a portfolio loaded 65% short debt; and 35% short stocks.
It was the Russell 2000 Volatility, ^RVX, that produced the 4.5% gain in SJH today, as seen in the chart of SJH, IWN, and ^RVX
Perhaps one might enjoy my chart site: 19 ETFs to sell short and 11 ETFs to buy long for a debt deflationary bear market.
Most are gold stock bulls. I am a gold stock bear. The HUI precious metal mining shares, $HUI, usually make market turns lower with US Treasury Bonds, $USB. The chart of $HUI:$USB, turned lower today as the gold mining stocks turned lower today August 30, 2010, and the US Treasuries turned lower on August 27, 2010. One could short the junior gold mining stocks, GDXJ, which closed lower today at 29.24, but better results will be achieved with TBT and/or TMV.
The ratio of the emerging market currencies, CEW, relative to major currencies, DBV, CEW:DBV, rose back near its recent high.
Currency traders took the Swiss Franc, FXF, higher again today; in so doing, continuing to profit from their the Swiss Franc to Australian Dollar carry trade as seen in chart of FXF:FXA. The onset of the European Sovereign Debt Crisis, brough a tide of money flowing into Swiss Banks, and the currency traders played this like a fiddle by going long the Swiss Franc and short the Australian dollar to great financial reward.
Confirming that the world has entered into Kondratieff Winter, the once world leading stock Exxon Mobil, XOM, fell below 60 on August 19, 2010 to trade at 59.00. It has a PE of 11.50 and a dividend of 3.0%.
Ben Levisohn in WSJ article The Decline Of The PE writes: The stock market’s average price/earnings ratio is in free fall, having plunged about 36% during the past year, the largest 12-month decline since 2003. It now stands at about 14.9, compared with 23.1 last September, based on trailing 12-month earnings results. Based on profit expectations over the next 12 months, the P/E ratio has fallen to 12.2 from about 14.5 in May.
Disclosure: I am invested in gold bullion