Financial market report for September 23, 2010
I … Stephen Bernard of the Associated Press reports that stocks fell as new worries emerged about Europe’s economy and the U.S. job market.
Traders were disappointed to see first-time unemployment claims rise last week, breaking a recent trend of declines. The Labor Department said claims jumped by 12,000 and are still at levels that signal employers are not significantly adding new jobs. Economists polled by Thomson Reuters had forecast claims would remain unchanged.
European markets fell and the euro dropped against the dollar after a closely watched reading on business activity in the 16 countries that use the euro weakened more than expected. It was the latest sign of trouble in Europe, which investors had largely stopped worrying about since a debt crisis in Greece eased this spring. Adding to the gloom was news that Ireland’s economy contracted 1.2 percent in the second quarter
II … Shawn Pogatchnik, of the Associated Press, writes Irish, Portuguese Bond Sell Off Fans EU Debt Fears.
Investors sold off Irish and Portuguese bonds Thursday, driving the borrowing costs of both countries to euro-era records and reinforcing worries about the heavy debts some European governments are carrying.
III ... Ambrose Evans Pritchard of The Telegraph reports Ireland Faces Double Dip, Mulls Restructuring Of Junior Bank Debt
Irish borrowing costs have surged to a post-EMU record after Ireland's recovery buckled over the summer and Dublin said creditors of Anglo Irish Bank may be asked to "share" losses, a warning to bondholders that the dam may at last be breaking on debt restructuring in the eurozone.
Brian Lenihan, the finance minister, sent shivers through debt markets by refusing to rule out a haircut for holders of Anglo's ?2.4bn subordinated debt
An Irish official told The Daily Telegraph that Dublin will "explore the appropriate burden-sharing arrangements" over coming weeks as it fleshes out its plan to break up the nationalised bank. Anglo Irish may ultimately cost Irish taxpayers as much as €25bn.
"This is not just an Irish concern," said Gary Jenkins from Evolution Securities. "Politicians across Europe want to share some of the pain of the financial crisis with bondholders, and that will force creditors to crystalise losses. The markets are waking up to the restructuring risk."
IV … Currencies traded lower against the Yen, causing an unwinding of carry trades and currency crosses.
The chart of the day is that of the Euro, FXE, which fell to 132.69.
The Swedish Krona, FXS, fell to 144.09.
The Australian Dollar, FXA, fell to 95.23.
The US Dollar, $USD, rose to 80.09
The Japanese Yen, FXY, rose to 117.35.
The rise in the chart of JYN reflects strength in the Yen.
The Euro-Yen carry trade, the EUR/JPY, fell; as is seen in FXE:FXY falling lower.
The Swedish Krona-Japanese Yen carry trade, fell; as is seen in FXS:FXY falling lower.
The Australian Dollar-Japanese Yen carry trade, the AUD/JPY, fell; as is seen in FXA:FXY falling lower.
V … Stocks fell lower
World Shares, ACWI, fell 0.9%.
The fractal fall lower in the ratio of the small cap pure value shares, RZV, relative to the small cap growth shares, RZG, …. RZV:RZG … communicates two important concepts. First, the debt deflation bear market, that commenced with the onset of the European Sovereign Debt Crisis in April 2010, has returned. And second, competitive currency deflation, that is competitive currency devaluation, has introduced a global financial bear market.
Fallers of the day included:
Sweden, EWD, 3.0%
Europe, VGK, 1.5%
Australia, EWA, 1.0%
Asia Excluding Japan, EPP, 0.7%
Singapore, EWS, 0.7%
Columbia, GXG, 1.6%
Frontier Markets, FRN, 0.9%
Emerging Markets, EEM, 0.6%
Active Real Estate, PSR, 2.8%
Residential Estate, REZ, 2.6%
Industrial Office Real Estate, FIO, 2.5%
Small Cap Pure Value, RZV, 1.5%
Russell 2000, IWM, 1.5%
Europe, VGK, 1.5%
Ireland, EIRL, 2.6%
Spain, EWP, 1.8%
European Financials, EUFN, 2.1%
Banks, KBE, 1.8%
Nasdaq Banks, QABA, 1.0%
India Earnings, EPI, 0.8%
American Express, AXP, fell 1.0%
The ratio of European Financials, EUFN, relative to Emerging Market Financials, EMFN, … EUFN:EMFN … communicates that the distress and deterioration that occurred with the onset of the European Sovereign Debt Crisis of April 2010 has returned.
Housing, ITB, 1.7%
Industrials, XLI, 1.5%
Nanotechnology, PXN, 1.4%
Airlines, FAA, 1.2%
Entertainment And Leisure, PEJ, 0.9%
The S&P, SPY, fell 0.8%
The fall in real estate as seen in the chart of Active Real Estate, PSR, which lost 2.8% today, communicates a new dynamic at work. When taken in conjunction with the fall in Banks, KBE, the FASB 157 entitlement to value real estate at the bank manager’s best estimate rather than at market has ended. The ability for the real estate cartel consisting of the banks and the the GSEs Fannie Mae and Freddie Mac, to pretend and extend unreal real estate prices is done and over. This means that the GSE policy of loss mitigation will be taken seriously and those living payment free in the bank’s shadow inventory will be foreclosed upon and then either evicted or asked to pay rent. The corporate mission of banks will change from one of lending to one property management and renting of REO properties. I think of the FASB 157 entitlement as an options contract, and the reemergence of the bear market, this time knocking down real estate sector value has made the FASB 157 entitlement/option contract expire worthless. Americans will be very much surprised to see the value of their home values plummet in value. And unfortunately, it won’’t be like in Hungary, where the government lets people go scotch free in paying of Swiss Franc and Euro denominated carry trade mortgages.
Small cap pure growth, RZG, rose 1.1%
Semiconductors, XSD, rose, 0.6%
Brazil, EWZ, rose, 1.1%
VI … Commodities traded mixed
Timber, CUT, fell 1.4%.
Base Metals, DBB, rose; causing Tin, JJT, to rise manifesting a questioning harami.
VII … Volatility rose
Inverse S&P Volatility, XXV, fell 1.8%. Its reasonable to include this ETF in one’s short selling portfolio.
Bonds, BND, rose 0.02%, manifesting a dark filled candlestick closing at 82.44, which is below its high of 82.57.
The 20 to 30 Year US Government bonds, TLT, rose 0.29%, manifesting a dark filled lollipop hanging man candlestick. The chart provides clear, cogent and convincing evidence, that a top has been made in US Government Debt and that Treasuries cannot sustain wealth. As these fall lower, then the value of the Federal Reserves Excess Reserves will fall lower. Fidelity Capitol and Income, FAGIX, fell 0.11% lower to close at 8.97. Its portfolio, consists of distressed securities, and thus approximates the value of the US Federal Reserve Balance Sheet, as the Fed took in these types of securities under its TARP Facility, overseen by Elizabeth Warren, as it nationalized the Banks, KBE, and the-too-big-to-fail-banks, RWW. The truth is that the banks and the US Federal government are one in the same thing. The US Federal Reserve program of QE created state corporatism, that is state corporate rule over America.
Unlike some popular economist pundits, who coddle their readers, I'm here to here to tell you the "Bond Bull Is Dead". I strong recommend that one be invested in gold bullion. And no, I don't peddle liberty as others do in selling gold coins.
Chart of FAGIX — It trades similarly to Junk Bonds, JNK. One can realistically think of the US Federal Reserve as a repository of junk debt. All the good stuff, the US Treasuries are in Excess Reserves.
The 30:10 US Government Yield Curve, $TYX:$TNX, fell lower: the yield curve flattened today. An ongoing flattening sovereign debt yield curve, will act to continually destroy bond wealth of all types, including the longer out maturity corporate bond wealth, BLV.
IX … The world has passed through Peak Fiat Wealth … Gold has risen to become sovereign wealth as well a the world’s sovereign currency
Junk Bonds, JNK, have fallen lower for the third straight day, communicating that the world has passed through Peak Liquidity. We have gone from an era of prosperity into an age of debt servitude. Unwinding carry trade investment will continually work to destroy junk bond values.
Given, that currencies and stocks fell lower today, and that bonds, BND, have topped out, Peak Wealth has been achieved.
Debt deflation and competitive currency deflation is now at work destroying currency and stock wealth. And a flattening US Sovereign Debt Yield Curve is now at work destroying bond wealth.
Thus a triad of deflationary forces are at work destroying fiat wealth.
Gold, $GOLD, rose 0.08% higher, to close at 1292.30. Gold is now the world’s sovereign currency and undisputed storehouse of investment wealth. Wealth can no longer be preserved by investing long in either stocks or bonds.
For those interested in short selling I present a ChartList of Stocks and ETFs to sell short for a debt deflationary bear market where I present a number ot things to sell short including DRN,TNA, URE, URTY, USD, EZJ, UCO, UXJ, UPV, SOXL, RETL, INDL, UXJ which I present in this Finviz Screener the portfolio of which is up 4.7% since September 20, 2010. Chart of URE is presented below; it
Today, Jordan Robertson, of the Associated Press wrote after the bell that Advanced Micro Devices Inc. has lowered its third-quarter outlook, supplying fresh evidence that consumers’ penny-pinching on personal computers has led to a painful back-to-school shopping season for some technology companies. AMD is the world’s No. 2 maker of PC microprocessors, the “brains” of those machines. Its announcement reinforces a message the computer industry has been sending for the past month: stubborn unemployment and worries that the global economic recovery is sputtering have caused many consumers to close their wallets when it comes time to buy a new PC. The rise in semiconductors, XSD, today provided an excellent opportunity to go short semiconductors, specifically short SOXL
Disclosure: I am invested in gold bullion