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The End Of The Current Economic Cycle Manifests As The Euro, Commodities, Gold Stocks, And Bonds Turn Lower

Financial market report for December 7, 2010


Bond vigilantes called interest rates higher globally, turning currencies, commodities and gold mining stocks lower. Today was a transitional day into the age of deleveraging characterized by rising interest rates and sovereign debt crisis. 

I … The US Dollar turned higher as the commodity currencies turned lower.
Today December 7, 2010, the currency traders called most all of the major world currencies, DBV, and the emerging market currencies, CEW, lower as the bond vigilantes called the interest rate higher on the US 30 Year Government Bond, $TYX, and the US Ten Year Note, $TNX, higher, as President Obama and the Republican controlled US Congress refused used to trim the budget and raise taxes.  Now sovereign crisis, encompasses the US in addition to the Eurozone. Kelly Bit of Bloomberg reports Greenlight's Einhorn Says Global Sovereign Debt Crisis Looms. David Einhorn, president of hedge fund operator Greenlight Capital Inc., said the global economy will face a sovereign debt crisis after governments around the world increased spending to deal with the fallout from the financial crisis. “We managed to transfer a lot of the problems from the private sector to the public sector,” Einhorn said in an interview with the Charlie Rose television show. “It’s created a very, very large budget deficit. And it’s created a monetary policy that’s extremely easy. It is eventually going to come to a tough spot.” The U.S. reported on Oct. 15 its second-largest annual budget deficit, $1.29 trillion, for the fiscal year ended Sept. 30.

Currencies in this Finviz screener, traded as follows:
FXM -1.0%
FXY -1.0%
BZF -0.8%
FXC -0.7%
FXA -0.6%
FXF -0.6%
BNZ -0.6%
FXS -0.5%
FXE -0.3%
CEW -0.3%
XRU +0.3%
FXB +0.3%

The Euro, FXE, fell 0.3% lower.

$USD +0.4%

II ... Commodities manifesting bearish engulfing and fell lower.
Commodities DBC, manifested bearish engulfing at the top of an ascending wedge, and fell 0.6% lower.

Natural Gas, UNG, hit resistance and turned 2.0 % lower,

Oil, USO, manifested bearish engulfing and fell 1.1% lower.

III … World Stocks turned lower.
World Stocks, ACWI, manifested bearish engulfing at the top of an ascending wedge and turned 0.3% lower.

Many country stocks turned lower.
Brazil, EWZ,  fell 1.0% lower.

The S&P, SPY, traded 0.1% higher, but manifested a dark cloud cover at the top of an ascending wedge.

European Shares, VGK, traded higher 0.4% higher but manifested  ad ark cloud cover.

Emerging Markets, EEM, fell lower 0.5% lower at the top of an ascending wedge.

European Financials, EUFN, rose 0.1%higher and manifested a dark cloud covering candlestick. The chart suggests that the Eurozone banks are on the verge of entering an Elliott Wave 3 down.   

Vietnam, VNM, rose 4.1% higher in what may turn out to be an evening star.

A number of sector stocks moved higher.
International Basic Material, DBN, moved higher 0.7% higher manifesting a hammer, as base metal prices, DBB, manifested bearish at the top of and ascending wedge and fell 0.2% lower.

Base metal prices DBB, manifested bearish and fell 0.2% lower at the top of an ascending wedge.

Copper Miner, COPX, rose 1.9%  as copper prices, JJC, manifested a lollipop hanging man candlestick and rose 0.1% higher. Uranium Miners, URA, +0.2%, Global Industrial Mining Equities, CRBI, +1.3%,
BHP Billiton, BHP, +1.4% higher.

Nuclear Energy, NLR, manifested a bearish cloud cover at the top of an ascending wedge and fell 0.25 lower

The parabolic rise in many small cap sectors of the recent days suggests that a market top is in. \

Health Care Small Caps, XLVS, rose 0.4% higher in what may turn out to be an evening star.

Small Cap Energy Shares, XLES, rose 0.2% higher manifesting a dark cloud cover at the top of an ascending wedge. As did Leveraged Buyouts, PSP. +0.2%. Aa did Revenue Shares Small Caps, RWJ, +0.8. As did Nasdaq Community Banks, QABA, +0.8%, As did Semiconductors, XSD, +0.2%. As did Nanotechnology, PXN, +0.7%. As did Nasdaq Internet, PNQI, +0.2%. As did Small Cap Consumer Discretionary, XLYS, +0.8%, As did Dogs of the Dow, DOD, +0.8%, as did Leveraged S&P, BXUB, +0.25, as did Small Cap Industrial Shares, XLIS, +0.8%, as did Home Builders, ITB, +0.3%, Steel Manufacturers, SLX, +0.3%

Small Cap Pure Value Shares, RZV, rose 0.8%

Transportation shares that have been doing well, continued higher today.  
Railroads, Genesee and Wyoming, GWR,
Transportation, GATX Corp, GMT,
Air Transport Services Group, ATSG
Transportation: Wabtec, WAB
Transportation: Expediters of Washington, EXPD
Transportation: Textainer Group Holdings, TGH,

Restaurants continued higher.
Restaurant: Cheesecake Factory, CAKE,
Restaurant: Panera Bread, PNRA

Russell 2000, IWM, rose 0.6%

Disk Drives continued higher
Seagate Technology, STX,
Disk Drives, Western Digital, WDC

Junk Bonds, JNK, rose 0.3%

Ratio of the small cap pure value shares relative to the small cap pure growth shares, RZV:RZG rose higher to 0.791 reflecting a likely final rush into the small cap value shares as well as short sell covering.

IV … Utilities under perform and hit resistance
Art Hill reports utilities under perform and hit resistance. The fall lower in the utilities, XLU, is quite a bearish omen and drag on the whole stock market.

Centerpoint Energies, CNP, manifested bearish engulfing and fell lower.

V … Gold mining stocks turn lower on a flattening yield curve.
The 30 10 US Sovereign Yield Curve, $TYX:$TNX, flatten today.


The gold mining stock, GDX, fell 2.2%

The junior gold mining stocks, GDXJ, fell 3.6%

The silver mining stocks fell, SIL, fell 2.6%

Silver Standard Resources, SSRI, fell 5.3%; its chart performance shows that it to be one of the top swing stocks.

The HUI precious metal stocks, ^HUI, traded lower as the 30 Year US Government Bonds, EDV, traded lower. The chart of the HUI Precious Metals relative to the 30 Year US Government Treasuries,   $HUI:$USB, turned lower, after having gone parabolically higher yesterday. The gold mining stocks and the US Treasuries have often turned lower in the past together. The chart suggest that the great price paid for value is now over as well as risk is now over.

The Gold Mining shares Relative To Gold, GDX:GLD, manifested a lollipop hanging man candlestick, suggesting that the rise in gold mining stocks relative to physical gold is complete.

The precious metals in the futures market, JJP, manifested bearish engulfing candlestick at the top of an ascending wedge, “suggesting” that the end of end of a cycle is at hand. This of course does not mean that the price of the metals in the futures will turn lower, it just means that some see the end of a cycle. And of course this does not preclude that an even greater cycle might commence soon. It just means that some see the conclusion of an investment wave.   

Gold mining stocks are the ultimate value stock … they are the ultimate cyclical stock … they are the ultimate swing stock and “the great swing of the age is in”. The gold socks fell on falling yield curve.

Investors have been buying risk, that is risk both in the gold mining stocks and in the 30 Year US Government bonds. And today investors sold out of both risks with the ultimate risk being in holding the ultimate value stock, that being the precious metal mining stocks.

People invest in gold mining stocks because they like to swing. People who are gold stock investors, have risk appetite, and today they chose the opposite, that being risk avoidance, recognizing that digging around for precious metals is risky in every since of the word, and that there comes an end to a risk cycle and that day arrived today as the bond vigilantes picked the global investment bubble, by calling interest rates higher as the US President and the Republican Congress have refused to trim the deficit and raise taxes.

The Morgan Stanley Cyclical Index has 30 components, one of which is Freeport-McMoRan Copper & Gold, FCX,  a basic materials company, and it rose 0.7% today, showing its copper component, as Copper Mining Stocks, COPX, rose 2.0% as the metal copper, JJC, rose 0.1%.

Copper Mining Stocks, COPX, rose manifesting a hammer candlestick, often a termination indicator.  

Copper, JJC, the metal, rose manifesting a lollipop hanging man candlestick, often a pivoting indicator.

The chart of the Morgan Stanley Cyclical Index, ^CYX,  $CYC, shows a hammer, suggesting that its rise, that came with the rise in the Euro, FXE, with the announcement of the European Financial Stability Facility, EFSF, is over, and that a down cycle is now ready to commence over the US Budget, monetization of US debt by the US Federal Reserve QE2, and by concern over sovereign debt residing in European Financial Institutions.

Massive debt deflation and an unwinding of yen carry trade and dollar carry trade investment is imminent.

Competitive currency deflation, that is competitive currency devaluation at the hands of the currency traders will be taking commodities, bonds, and stocks lower.

The age of deleveraging is about to commence.

I suggest that the coming down cycle is an entrance into an Elliott Wave 3 Down, which is the most destructive of all economic waves … The wave ends up, for all practical purposes ,destroying all wealth. … In this case, the destruction of most all the value in the cyclical stocks found in the Index.

VI …  Bonds
Total Bonds, BND, fell strongly lower 0.7% lower.

The Zeroes, ZROZ, fell 3.6% lower.
The 30 Year US Government Bond, EDV, fell 2.6% lower.
The 10 to 20 Year US Government Notes, TLT, fell 2.1% lower

Municipal bonds, MUB, fell 1.4% lower
California Municipal Bonds, CMF, fell 0.4% lower.

Today,  the bond vigilantes called the interest rate on the 30 Year US Government Bond, $TYX, higher to 4.14.%, on recognition of the massive US deficit, and the lack of resolve on the part of the US Congress to cut spending and raise taxes.


VII … Is Fiscal Sovereignty Going To Be Handed Over To A Central European Policy Maker?

John Redwood, MP, in article Euro Trick Or Treat suggests five options to resolve the current European Financial Institution, common currency, sovereign debt symbiosis crisis.

Helen Smith of The Guardian reports Greece Seeks Longer To Repay €110bn IMF Bailout Loan As Austerity Bites reports that IMF Chief Dominique Strauss-Kahn will arrive in Greece today to discuss the extension of the repayment period for Greece's bailout loan with Greek Prime Minister George Papandreou. EU statistics office Eurostat has predicted that Greece's public debt will be at 160% of GDP by 2013.

In a letter to the Economist, Open Europe's Vice-Chairman Derek Scott notes that "the 'Austrian school' of economic ideas has not been taught for a long time in any university department; hence the response of the economic establishment that the current crisis could not have been foreseen."

I see a currency run on the Euro, and a strong sell of the current European Financial Institution, stemming from the sovereign debt symbiosis crisis, resulting in a collapse of the world’s economic system.

Out of this Götterdämmerung, I believe a Sovereign-Chancellor, such as Angela Merkel or Herman van Rompuy; and a Seignior-Banker, such as Wolfgang Schäuble, Olli Rehn, or Jean-Claude Trichet, rising to power with fiscal sovereignty to control deficit spending, enforce internal country devaluations, to provide a common EU Treasury for both taxation and transfer payments, assure mutual guarantees of the EU debt, and as Timothy Geithner called for, the implementation of  unified regulation of banking globally. All seigniorage, both credit and fiscal will come and go through the Seignior, who will make decisions on where money is spent.

I foresee national sovereignty passing away throughout the world, as Leaders’ Framework Agreements establish ten regions of global governance as called for by the Club of Rome in 1974; hence people will no longer be citizens of sovereign nation states, rather residents living in a region of global government.

VIII … In today’s news
The call for social justice in immigration becomes ever louder as ReligionLink relates: President Barack Obama pushed for immigration reform in a major speech on July 1, 2010 at the American University School of International Service in Washington. While Obama focused on “the need to fix our broken immigration system,” many wondered whether the speech could jump-start the legislative process. The social justice lobby, Faith in Public Life, announced a series of efforts pivoting off Obama's speech for a “Justice July” for immigration reform. The efforts include alliances between African-American and Latino pastors to show a  united front; a meeting with White House officials and a letter signed by 600 religious leaders delivered to the president; and plans for interfaith vigils, marches and other public activities.  And today, December 7,2010 Michael Gerson, dedicated his column in The Washington Post to arguing on behalf of the DREAM Act, relating The Dream Act Transcends Politics.

Michael Gerson is an Opinion Writer with the Washington Post; is of the Religious Right having written The Success and the Failures of the Religious Right; is an advocate of Compassionate Conservatism and believes that Christians should not abandon the public square as reported by Sarah Pulliam Bailey in Christianity Today article Faithfully And Politically Present. He is author of Heroic Conservatism (HarperOne, 2007) and co-author of City of Man: Religion and Politics in a New Era (Moody, 2010). From 2006 to 2009, was the Roger Hertog Senior Fellow, at the Council on Foreign Relations (NYSE:CFR). Before joining CFR in 2006, Gerson was a top aide to President George W. Bush as Assistant to the President for Policy and Strategic Planning. He served in the White House as Deputy Assistant to the President and Director of Presidential Speechwriting and Assistant to the President for Speechwriting and Policy Advisor. Gerson joined Bush's presidential campaign in early 1999 as chief speechwriter and a senior policy adviser. He was previously a senior editor covering politics at U.S. News and World Report. Gerson was a speechwriter and policy adviser for Jack Kemp and a speechwriter for Bob Dole during the 1996 presidential campaign. He has also served Senator Dan Coats of Indiana as Policy Director. Gerson is a graduate of Wheaton College in Illinois.