Monday, 8 February 2010
THE TEMPERATURE OF THE STOCK MARKET IS....COLD.
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
-- John Maynard Keynes
WILL IT GET COLDER?
It's hard to watch the 'European debt catastrophe' unfold without a bit of schock that another crisis could unravel so quickly -- or, likewise, that it has taken so long to happen. I read American writers who defend the European 'reality' and who claim that the meltdown facing Europe is a false crisis engineered by American financial wizards attempting to misdirect the world's view and negate America's own likely debt default by having the world look at the 'wrong' crisis -- and keep pumping money into TBonds (keep, or start again). These are, in many cases, the same people who claim that China's recovery is real (even if a bit overdone through stimulus extremism) and will lead China into a Golden Age that will leave Western economies (read American and British) broken and begging for assistance from the new, solitary Super-Power.
I guess there is more international evidence now that debt in European democracies in threatening their ability to transcend the American debacle. We wanted one world, didn't we? Now we have it.
Ambrose Evans-Pirtchard has suggested that the world has just received a 'margin call'. In his article for the Telephraph, Pritchard writes:
This is not to suggest that only Europe is facing the hangman's noose. Our own Colorado Springs, a once-wonderful small town, that became an example of how low interest rates and overzealous (corrupt?) developers bearing the gifts of financial sterroids can turn a pleasant town in the desert into a hideous bloated beast sprawling, flailing and now understanding they must take no prisoners... Now Colorado Springs is hurting, turning off street lights, laying off police anf fire-fighters, and canceling bus lines that run at night and over the weekend. This is just the beginning of the austerity the world is going to enter.Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU's refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece's drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.
Barclays Capital says the net external liabilities of Greece are 87pc of GDP, or €208bn (£182bn). Spain is worse at 91pc (€950bn), and Portugal worse yet at 108pc (€177bn); Ireland is 68pc (€123bn), Italy is 23pc, (€347bn). Add East Europe's bubble and foreign debts top €2 trillion.
The scale matches America's sub-prime/Alt-A adventure and assorted CDOs and SIVS of the Greenspan fling. The parallels are closer than Europe cares to admit. Just as Benelux funds and German Landesbanken bought subprime debt for high yield with AAA gloss, they bought Spanish Cedulas because these too had a safe gloss – even though Spain's property boom broke world records. They thought EMU had eliminated risk: it merely switched exchange risk into credit risk.
A fat chunk of Club Med debt has to be rolled over soon. Capital Economics said the share of state debt maturing this year is even higher in Spain (17pc) than in Greece (12pc), though Spain's Achilles' Heel is mortgage debt.
The risk is the EMU version of Mexico's Tequila crisis or Asia's crisis in 1998. This Ouzo crisis is coming to a head just as tougher bank rules cause German lenders to restrict loans, and it touches on the most neuralgic issue of our day: that governments themselves are running low. Britain, France, Japan, and the US are all vulnerable. All must retrench. The great "reflation trade" of 2009 is over.
Far from containing the crisis, Europe's response recalls the Lehman/AIG events of 2008 when Brussels sat frozen, and Germany dragged its feet. On that occasion France took charge, in the nick of time.
You cannot spend money you don't have indefinitely, even if the banks tell you its ok. The job of the banks, in fact, is to tell you it's not ok. But that is taking short-term bread out of their mouths -- so it's tempting to 'just say yes'. This is especially so when the bankers are being told by Wall Street that there is no risk: they have created a new financial instrument that ELIMINATES risk through mathematical manipulation of...vectors. I always like it when vectors are being manipulated by geniuses on Wall Street. How can we NOT believe what they are saying? They are the master's of the universe; and they have stolen frie from heaven. We would be idiots not to trust them.
Let's confront our debt. Let's pay it back, or default on it if we cannot pay it back. Now that would be a more refreshing approach than...'let's stall. If we can hold out long enough, maybe all the people we owe money to weill be dead or victims of some form of dementia. There's still a chance we can get out of this smelling like a rose, without taking a beating..."
Sorry. We deserve the beating. Let's LEARN from our mistakes; and let's take a beating with a certain amount of dignity. We can still gain some self respect as we try to right ourselves and remember when we wiser than we are today.
Daily Charts: VIX, CRB Volatility Index, has done everything it needs to do to make one believe it is bottoming from a lengthly downturn. The VIX is very tricky however. It is prone to head-fakes, fraudulent smoke-sigals, and arbitrary laughter.
QID, Short Nasdaq ETF: Has put in a successful bottom and has successfully tested TWO upside resistance levels. This is, by definition, a bull market...however, reverse ETF's have, because of their volatility, shown an ability to break up and break down again. However, with the deterioration in stock index momentum, this 'looks' like the real thing.
REW, Short Technology ETF: once again, a series of higher highs and higher lows. Looks like an upside reversal.
Weekly Charts. We had a whole series of sell signals in our T5 (3) Test LT trading indicator. Sell signals are listed below. We're showing a few charts of these trading signals below. This indicator requires only the short-trm trend go negative. In many cases tyhis is the only trend indicator that has gone negative. It IS possible for them to reverse to the upside again. However, when the short-trend trend breaks through support, it is difficult for the price to rebound against overhead resistance.
|^AORD||ALL ORDINARIES AUSTRIALIAN INDEX|
|^BVSP||IBOVESPA SAO PAULO|
|^DJT||DOW JONES TRANSPORT INDEX|
|^FCHI||CAC PARIS INDEX|
|^NDX||NASDAQ 100 INDEX|
|^RUT||RUSSELL 2000 INDEX|
|^TWII||TSEC WEIGHTED TAIWAN INDEX|
|^XCI||AMEX COMPUTER STOCK INDEX|
|BBL||BHP BILLITON PLC|
|BP||BRITISH PETROLEUM PLC|
|COP||CONOCO PHILIPS INC|
|EPI||INDIA INDEX ETF|
|FIO||COMMERCIAL/OFFICE REIT ETF|
|FXA||AUSTRALIAN DOLLAR ETF|
|GLD||SPIDER GOLD SHARES|
|IAU||ISHARES COMEX GOLD TRUST|
|IYW||AMERICAN TECH ETF|
|QQQQ||POWERSHARES QQQQ NASDAQ ETF|
|RHT||RED HAT INC.|
|RSX||RUSSIA INDEX ETF|
|SEA||GLOBAL SHIPPING ETF|
|VALE||VALE S.A. (NYSE:RIO) WEEKLY|
|VNQ||VANGUARD REIT INDEX ETF|
|XES||SPIDER OIL GAS EQUIPMENT ETF|
|XGCSX||SCUDDER GLOBAL COMMODITIES FUND|
|XME||SPIDER METALS AND MINING ETF|
IO, Ion Corp. This is a pretty good picture of the higher highs and higher lows that define a bull move. 4 new bottoms; 4 new highs during the move. But that pattern has ended for the moment.
BLK, Blackrock. A very similar chart: 5 new bottoms; 6 higher tops in a row. Now broken support.
BVSP, Bovespa, Brazilian Index. The price pattern is still positive; Momentum (M5 (3) is in a free-fall however. Short-term support should break this week. That is a prediction; nothing written in stone.
DJT, Dow Jones Transports. Momentum in free fall; trend confused, with a lower low and a higher high taking aim an lower support again.
SOX, Semiconductor Index. New High breaking down. Momentum breaking down. Nothing definite here.
TWII, Taiwan Index. If support holds, we might have another rally. Momentum has cracked. Hard to believe we will turn on a dime and start back up. Psychologically, a lot of damage -- and Ben Bernanke is not the kid of man (of the year) he once was. He's a lame duck now, defending a policy that delayed bankruptcy for a year of so -- and made it worse.
APPL, Apple Computer. How can one be negative on this wonder-stock? Looks like, I-Pad and all, Apple may be topping.
More information on this system can be found at
A draft of the book Turn Out the Lights can be found at the website below. This book is a description of the metaphysical causes of the economic cycles of expansion (Day) and contraction (Night).
Michael J. Clark's Gate Timing System
84 4 221 92210
Disclosure: The author owns none of the issues he mentions in this article.
Disclosure: Disclosure: The author owns none of the issues he mentions in this article.
Disclosure: Author owns no issues mentioned in this post.
Disclosure: Author owns no stocks he mentions in this post.