I ... Silver, SLV, rose 1.7% and World Stocks, ACWI, rose 2.3% on Friday, September 24, 2010, as currency traders took the Euro, FXE, 1.3% higher to 134.41.
The daily chart of ACWI shows a lollipop hanging man candlestick at the top of an ascending wedge, suggesting that the four week rally in world stocks is done and over. I provide a wave count of “2 up”, and ready to begin on “3 down”. The coming 3 down will be the final 3 down. The number three wave builds wealth on the way up and destroys wealth on the way down. There is coming soon a total destruction of fiat stock wealth, that is why I am invested in gold bullion, $GOLD.
The Euro Yen carry trade, that is the EUR/JPY, as seen in the chart of FXE:FXY, has risen to strong resistance.
The Swedish Krona carry trade, as seen in the chart of FXS:FXY, has reached completion.
The chart of the Euro, FXE, and that International Discretionary, IPD, which rose 13%, in the last 4 weeks, communicates that the European Bank Stress Test Rally and the FOMC Rally are over.
Daily Chart of the Euro, FXE
Weekly Chart of IPD
Some of the top performing ETFs for the last four weeks include:
1) Copper Miners, CU, 21% ... Euro Rally and Australian Dollar Rally and Risk Acceptance of the BHP buyout of POT.
2) Emerging Market Small Cap Dividend, DGS, 11% ... Flight to safety in the emerging markets
3) India Earnings, EPI, 15% ... Flight to higher interest rates in India
4) European Financials, EUFN, 11% ... Euro Rally
5) Australia, EWA, 13% ... Currency Rally
6) Sweden, EWD, 20% ... Currency Rally
7) Spain, EWP, 12% ... Euro Rally
8) Singapore, EWS, 8% ... Flight to safety of an Asian offshore haven; the chart of Singapore shows the hot money flow that has come out of Europe and into Asia.
9) Dow Jones Internet, FDN, 15% ... Internet Rally
10) Frontier nations, FRN, 5% ... Flight to safety in the frontier markets
11) Internet, HHH, 16% ... Internet Rally
12) India, INP, 17% ... Flight to higher interest rate in India
13) International Discretionary, IPD, 13% ... Flight to safety
14) Tin, JJT, 13% ... Euro Rally; the lollipop at the top of an ascending wedge indicates that maximum carry trade investment has been achieved in the commodity Tin.
15) Leisure And Entertainment, PEJ, 15% ... Flight to safety
16) Retail, PMR, 12% ... Flight to safety
17) Nasdaq Internet, PNQI, 16% ... Internet Rally
18) Nanotechnology, PXN, 14% ... Euro Rally
19) Small Cap Pure Value, RZV, 11% ... Euro Rally
20) Small Cap Consumer Discretionary, XLYS, 13% ... Flight to safety
21) Semiconductors, XSD, 13% ... Semiconductor Rally
22) Malaysia, EWM, 7% ... David Yong of Bloomberg reltes: “Malaysia’s ringgit traded near a 13-year high on speculation the nation’s yield advantage over developed countries will lure more overseas investment.”
II ... The twin spigots of investment liquidity have been shut off.
The first spigot: the above charts show that yen carry trade investment has expanded as much as it can, given that Japan intervened in the currency markets on September 15, 2010, to stop the rise of the Yen, FXY.
The second spigot: the US Federal Reserve Quantative Easing, that is QE, ended on March 1, 2010. There is nothing else the US Central Bank can do to stimulate the economy or markets.
The chart of Junk Bonds, JNK, gives confirmation that investment liquidity has peaked out. The world has passed through peak credit. The world has passed from an age of prosperity and into an age of debt servitude.
III ... Global competitive currency deflation has been introduced by the intervention of the Japanese Prime Minister in the currency markets .... It will re-introduce the debt deflation that came with the April 26, 2010 onset of the European Sovereign Debt Crisis.
Tyler Durden of Zero Hedge relates the first global currency wars are now declared fully open as the Brazil Central Bank to buy Dollars in Spot Currency Market ... and ... Peru Central Bank Buys US Currency.
The ratio of the small cap pure value shares, RZV, to the small cap pure growth shares, RZG. RZV:RZG Weekly, communicates that debt deflation will be an ongoing force destroying stock value.
Unlike some popular economic pundits who coddle their readers, I relate that The Bond Bull Is Dead, as the 30:10 US Sovereign Debt Curve, $TYX:$TNX, is flattening.
And gold mining stocks will no longer be a safe haven investment as the chart of the junior gold mining shares relative to gold, GDXJ:GLD, shows that the junior gold mining stocks, GDXJ, are disconnecting from the price of gold.
Developed market currencies, DBV, have reached their price objective. Unlike emerging market currencies, CEW, the developed currencies, DBV, are burdened by growing sovereign debt and rising sovereign credit default swaps.
Scott Hamilton of Bloomberg reports: “Britain posted the largest budget deficit for any August since records began in 1993 as debt costs soared … Net borrowing was 15.3 billion pounds ($23.7bn), compared with 13.5 billion pounds a year earlier.”
Emma Ross-Thomas and Joao Lima of Bloomberg report: “Portugal’s budget gap widened in the first eight months of the year … The central government’s shortfall rose to 9.19 billion euros ($12bn) from 8.74 billion euros a year earlier … Tax revenue rose 3.3% ... and spending increased 2.7%.”
The developed currencies relative to the emerging currencies traded down this week, as is seen in DBV:CEW Daily. And the DBV:CEW Weekly has hit resistance and turned lower, suggesting that depreciation is going to get underway in the major currencies. Those who live in the frontier markets, such as Peru, EPU, are the more fortunate compared to those living in the US, with its Russell 2000 companies, IWM, highly dependent upon well functioning banking and credit markets, as the latter will be at ground zero for adversity and austerity. In the coming age of chaos, I believe that food commodity prices, FUD, will be going higher. I expect volatility, VXX, to pick up Monday September 27, 2010. And I expect inverse volatility, XXV, to fall lower.
For those interested in short selling, I recommend the following eight ETFs from my ChartList of Stocks and ETFs to sell short for a debt deflationary bear market: their 4 week gains are shown; the stocks have been run up; now they will be run down. All I can say is get ready for investment shock and awe.
1) Sweden, EWD, 20%
2) Spain, EWP, 12%
3) European Financials, EUFN, 11%
4) Small Cap Pure Value, RZV, 11%
5) Consumer Discretionary Small Cap, XLYS, 13%
6) Active Real Estate, PSR, 6%
7) Semiconductors, XSD, 13%
8) Australia, EWA, 13%
For the experienced trader, I recommend selling short DRN, SOXL, and TNA as well as UPV, INDL, EZJ, URE, RETL, URTY and USD and TMF and UBT.
IV ... For those interested, I provide various Finviz Screeners:
1) A listing of 50 stocks, whose composite value approximates the world stocks, ACWI.
2) A listing of 50 stocks and ETFs to consider for short selling
3) A listing of Direxion and ProShares Inverse ETFs to sell short
4) A listing of the major currencies
5) A listing of commodities
V ... In today’s news
A ... Richard of RightwaysBlog provides the Dr. Tan Sri Lin See-Yan report of current economic conditions in Japan asserting that Yentervention is needed, as deeply entrenched deflation grinds on in Japan. The Nikkei 225, ^N225 dropped 1.6% this week, down 10.2% for the year, relates Doug Noland of Prudent Bear.
B ... At Jackson Hole, Fed chairman Bernanke remarked: “Central bankers alone cannot solve the world’s economic problems.”
I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US, a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts.
This person will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.
I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing/Renting Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have created and serviced mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.
And I envision that in Europe, with a fall in the EUR/JPY from 113, there will be stock deflation, with the European Shares, VGK, falling below 49, and European Financials, EUFN, falling below 22.50. Then a liquidity crisis will emerge, where there will not be enough buyers for sellers of stocks as well as bonds, causing small business failures, and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone Credit Seignior” and provider of liquidity to Europe.
While some write that Ms Warren has been appointed as a lapdog, I believe that Ms. Warren, is more likely to turn out to be the top dog, that is the Seignior, meaning top dog who takes a cut, and be called upon in time of crisis, to assume the role of Financial Regulator overseeing investment, banking, lending, credit, seigniorage and house leasing as her many articles would apparently qualify her for such a role.
C ... Swissness Is Highly Regarded In Asia, Says Hong Kong Banker
Lynnley Browning of the The New York Times reports on the new offshore safehaven for wealthy investors: For centuries, Switzerland has been the sanctuary of choice for wealthy people seeking to hide their fortunes and evade taxes. Now, amid a growing crackdown on Swiss private banking, the rich are flocking to Singapore and Hong Kong, which still offer some of the world’s most secret accounts.
But there is a twist in this shift to the East: Many of the banks growing in these low-tax oases have Swiss pedigrees. And their clients are not only Asia’s growing number of millionaires but also wealthy Americans and Europeans who, lawyers say, have been spooked by mounting scrutiny from the tax authorities in their own countries.
From UBS, which operates a training center in Singapore, to smaller private banks like Julius Baer, Swiss banks and those with Swiss-based operations are tripping over themselves to expand in the region.
“We have seen a massive uptick in hiring hundreds of private bankers” in Singapore and Hong Kong “to take the business leaving Switzerland,” said Raymond W. Baker, the director of Global Financial Integrity, a research institute in Washington.
Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan Law School, called the two Asian locales “the new alternative” to Swiss bank secrecy after the shackles placed on UBS by the United States last year.
UBS, the largest bank in Switzerland, has lost an estimated 200 billion Swiss francs, or about $200 billion, in assets from private banking clients over the last two years. But in Asia, it has won more new money than it has lost, according to an August presentation to investors by the bank’s chief executive of wealth management, Jürg Zeltner.
The bank would not give actual figures. But it did say it was planning to hire an additional 400 “client advisers,” or private bankers, for its Asia-Pacific region, on top of the current 867.
In February, UBS raised bonuses for Singapore bankers who bring in new clients. The Singapore government is one of the bank’s biggest shareholders, with about 9 percent, since diluted, bought in late 2007.
Credit Suisse’s top private banking executive, Walter Berchtold, said this month that net new assets coming into the bank from rich clients in Asia would grow more than 20 percent a year, more than triple the global average the bank has forecast.
At Julius Baer, whose headquarters are in Zurich, its board met in early September in Singapore, the first such convening there.
“We call it our second home market,” said Jan Vonder Muehll, a spokesman for Baer, adding that the bank planned to double its assets there and in Hong Kong, to 25 percent of its total, within five years. “Swissness is highly regarded in Asia,” he said.
Ronen Palan, a professor of political economy and an offshore finance specialist at the University of Birmingham in England, said that “all the evidence suggests that Singapore is making a concerted effort to replace Switzerland as the global center for private banking.”
The shift has taken place amid an attack on Switzerland’s private-banking industry, long a crown jewel and world leader.
In 2007, the Justice Department began a criminal investigation into UBS and, later, other Swiss banks for selling private banking services to wealthy Americans that allowed them to evade taxes.
Last year, UBS paid $780 million to settle the case. It later agreed to lift the veil of Swiss bank secrecy and disclose the names of 4,450 American clients to the Internal Revenue Service.
About the same time, European tax officials began gaining possession of discs stolen from Swiss banks that held data on thousands of clients, and a strengthened European Union directive required banks to withhold a minimum level of tax even on secret accounts.
Richard Murphy, a founder of the Tax Justice Network, a British research firm focused on offshore havens, said that amid the changes, “Singapore is where the Swiss can now find the banking secrecy they’ve lost at home.”
Hong Kong, he said, is a close second.
Critics, including Mr. Murphy, point to Singapore’s Swiss-style secrecy provisions; lack of taxes on capital gains and most foreign dividends; and system that allows depositors to open accounts in the guise of corporations, trusts and limited liability companies.
While Hong Kong does not have formal bank secrecy laws, it allows the formation of opaque companies that often serve as conduits for tax evasion. It also does not tax capital gains or deposit interest, and for corporations, it taxes only income produced in Hong Kong. “Both are serious players,” Mr. Murphy said. “Both offer serious opacity.”
Google Finance Chart of Singapore, EWS and Hong Kong, EWH, ... EWS and EWH for the period of March 25, 2010 to September 24, 2010, shows that Singapore has risen 15% and Hong Kong 11%.
D ... Tatiana Bautzer and Gabrielle Coppola of Bloomberg report: “Sales of securities backed by Brazilian real estate assets are surging to a record as homebuilders and mall owners expand amid the fastest economic growth in two decades.”
E ... Doug Noland of Prudent Bear writes: The Government Finance Bubble thesis holds that government debt is the latest - and greatest - episode of Hyman Minsky’s “Ponzi Finance.” During Q2, the markets accommodated a $2.0 Trillion annualized pace of federal debt growth. In just eight quarters, federal government debt expanded $3.610 TN, or 54%, to $10.308 TN. In a short 24 months, federal debt has jumped from 46% to 71% of GDP. And as long as the markets allow such unprecedented issuance of non-productive Credit at historically low yields, it’s quite possible that household incomes, corporate earnings, the general economy, and the securities markets might appear ok. Heck, Washington seems awfully determined to resuscitate asset prices. But we don’t have to look back too many quarters for a stark reminder of the nature of Ponzi Dynamics and Fragilities.
F ... Tyler Durden of Zero Hedge reports Three Wholesale Credit Unions Nationalized As US Securitizes $50 Billion In Legacy Toxic Assets
As for the funding of the new bailout program: "To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets." Once again, uncle Sam bails out those who have committed federal crime and sticks Joe Sixpack with the bill. How is it a crime? "Under federal rules, wholesale credit unions were supposed to invest only in safe, liquid assets. But some institutions chased higher returns by loading up on securities backed by subprime mortgages or other risky loans. Their portfolios were decimated by the mortgage meltdown."
I comment: The reality here is that US Federal Government, not the NCUA, is the Seignior providing the credit for the credit union bailouts. I did not know that the US had the legal authority to provide seigniorage, that is securitization, for the credit unions.
The report continues: “As part of the plan announced Friday, regulators will eventually wind down the operations of the five failed credit unions, which together had about $50 billion in shaky mortgage-backed securities on their books, according to Larry Fazio, NCUA's deputy executive director. Based on current market values, those securities are worth roughly half of their face value, representing a potential loss of $25 billion.”
Mr. Durden comments, that one reader relates: “The federal government now runs the student loan business, has controlling interest in the American auto industry, and controls the wholesale credit industry, which essentially gives them control of retail credit unions via control of their investment assets. They want control of the health insurance industry and will take control by running the private insurance companies out of business. They want control of individual medical decisions, with veto authority.”
Disclosure: I am invested in gold bullion