Financial market report for December 15, 2010
I .. Currency traders recommenced their global currency war of competitive currency devaluations by calling the worlds currencies, DBV, and emerging market currencies, CEW. lower in front of the European Leader’s Summit to address the Sovereign Debt and Bank Debt Crisis.
This as bond vigilantes called the Interest Rate on the US 30 Year US Government Bond, $TYX, the 10 Year US Government, TNX, higher on the US Federal Reserves monetization of debt and the Obama’s projected budget deficits. The 30 – 10 US Sovereign Debt Yield Curve, $TYX:$TNX, flattened causing disinvestment from bonds, BND,
Currency traders heavily sold the New Zealand Dollar, BNZ, -1.8%, British Pound Sterling, FXB, -1.5%,, Australian Dollar, FXA, -1.3%, Indian Rupe, ICN, -1.2%, Swiss Franc, FXF, -0.8%, Swedish Krona, FXS, -0.8%, Emerging Market CEW, -0.7%, Brazilian Real, BZF, -0.6%, Japanese Yen, FXY, -0.6%, causing the US Dollar, $USD, to rise.
OpenEurope in Press Summary reports: Fears of contagion are growing as both Spain and Belgium risk a new downgrade of their sovereign rating. Le Monde reports that Moody’s is considering downgrading Spain’s rating due to the country’s “high refinancing needs” in 2011. The Spanish government will have to raise around €170bn to refinance its debt. On top of that, €30bn of regional debt also needs to be refinanced along with a further €90bn of long-term borrowings by the Spanish banks. On his BBC blog, Robert Peston notes that the total amounts to 27% of Spain’s GDP. Open Europe’s Mats Persson is quoted in Swedish magazine Fokus warning that the Spanish government “has already guaranteed €90bn [of Spanish bank debt] and if it continues like this we may end up with a situation similar to that in Ireland.” Reuters notes that Standard & Poor’s is threatening to downgrade Belgium’s sovereign rating due to “prolonged domestic political uncertainty.”
Paul Tobin and Emma Ross-Thomas of Bloomberg report Spain’s Debt Rating May Be Cut by Moody’s Amid Struggle to Limit Contagion. Spain’s credit rating may be cut from Aa1, Moody’s Investors Service said, as the government prepares its final bond sale of the year tomorrow amid concern it may follow Greece and Ireland in seeking a bailout. Spain has to raise 170 billion euros ($226 billion) next year, while refinancing needs for its regions total 30 billion euros and for banks around 90 billion euros, Moody’s estimates. “Spain’s substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress,” Kathrin Muehlbronner, an analyst at Moody’s, said in a report today.
European Shares falling lower included ENI, E, Repsol, REP, Ireland, EIRL, Austria, EWO, Poland, PLND, Spain, EWP, Italy, EWI, Germany, EWG, Europe, VGK, Banco Santander, STD, European Financials, EUFN, as the Euro, FXE, fell 1.25%
The UK Bank Barclays, BCS, fell 4.3% …. Netherlands Bank, ING, -4.0% …. France Bank, BNPQY, -3.8%
II … Falling currencies stimulating disinvestment from Water Stocks, CGW, and Commodities, DBC
Water stocks, CGW, have been terrifically monetized. Water stocks were the very expression of moneyness under the previous age of leverage.
Debt deflation took Base Metals, DBB, Copper, JJC, Timber, CUT, Natural Gas, UNG, Silver, SLV, and Gold, GLD lower.
III … World Shares, ACWI, fell 1.0% lower; and Junk Bonds, JNK, fell 0.5% lower.
Arthur Hill reports Hindenburg Omen Triggers as McClellan Oscillator Turns Negative. With a surge in NYSE new 52-week lows this week, the Hindenburg Omen has triggered once again. The last such signal was in mid August. There is some debate on the exact criteria and thresholds. The chart below details the criteria set forth from James Miekka. According to Miekka, the signal “deactivates” when the McClellan Oscillator turns positive.
Debt deflation came to stocks today; significant fallers today included:
Singapore, EWS, -2.2%
Hong Kong, EWH, -2.0%
South Korea, EWY, -1.8%
Shanghai, CAF, -1.8%
China, FXI, China Banking, CHIX, and Real Estate, TAO, prices fall lower as Bloomberg reports China Consumers Signal Deepest Inflation Concern Since 1999 in PBOC Survey
Philippines, EPHE, -2.4%
Vietnam, VNM, -2.3%
Australia, EWA, -1.9%
New Zealand, ENZL, -1.7%
Australia, EWA, -1.9%
Asia Excluding Japan, EPP, -1.9%
India, INP, -1.3%
Brazil, EWZ, -2.0%
Russia, RSX, -0.9%
Great Britain, EWU, -1.6%
Mexico, EWW, -1.1%
Turkey, TUR, -2.25
Emerging Markets, EEM, -1.6%
Emerging Market Financials, EMFN, -2.0%
International Financial, IXG, -1.6%
India Earnings, EPI, -2.0%
International Dividend, DOO, -1.4%
Leveraged Buyouts, PSP, -1.2%
Financial Services, IYG, -1.0%
Banks, KBE, -1.0%
Freeport McMoRan Copper and Gold, FCX, -2.4%
Global Industrial Metals, CRBI, -1.9%
International Basic Materials, DBN, -1.7%
International Discretionary, IPD, -1.0%
Steel Manufacturers, SLX, -1.2%
China Materials, CHIM, -1.7%
Uranium Miners, URA, -1.5%
Copper Miners, COPX, -2.2%
Energy Service, OIH, -1.2%
Utilities, XLU, -0.9%, IPU, -0.9% and CNP -1.5%
Wind Energy, FAN, -1.2%
Real Estate, IYR, -1.1%
Shopping Center REIT: Simon Property Group, SPG, -2.5%
Industrial REIT: First Industrial Realty, FR, -3.7%
Office REIT: Caplease, LSE, 1.7%
Office REIT: Vornado Realty Trust, VNO, 1.5%
Residential REIT: Apartment Investment And Management Co, AIV, -1.8%
Office REIT: Brookfield Properties, BPO, -2.1%
Active Real Estate, PSR, -2.0%
Mortgage REITS, REM, -1.0%
Nuclear Reactor, NLR, -0.9%
Semiconductors, INTC, NVDA, TXN fell lower.
Solar, TAN, -1.0%
Airlines, FAA, -2.0%
Tax Managed Buy Write Opportunities, EWP, -2.6%
Small Caps, SAA, -0.4% as the Russell 2000, IWM, -0.3%
Foreign Small Caps SCZ, SCIF, SKOR, BRF, KROO, HAO, TWON fell significantly
Nasdaq Internet, PNQI, -0.8%
Restaurants: RUTH, -2.5%
Transportation: FLY, -3.8%, HUBG, -1.8%, UHAUL, -1.6%, GMT -1.5%
Disk Drives, WDC, STX fell lower
Business Services, URI, -2.3%
Rental Service, RRR, -1.8%
Gaming, BJK, -1.1%
IV. The HUI Precious Metal Stocks, GDX, the ultimate value stock fell lower.
Research shows that these always fall lower with the 30 Year US Treasuries, EDV, at market turns.
Gold Mining, GDX, AZK, -4.4%, NSU, -4.0%, NGD, -3.3%, GFI, -3.0%, GSS -2.4%, AEM, -2.3%, BVN, -2.2%, ASA -2.2%, NEM, -1.9%
Junior Gold Mining, GDXJ, -2.7%
Silver Mining, SIL, -2.6%
Silver Exploration, SSRI, -3.8%
V. Bonds, BND, fell 0.3% lower.
Emerging marke bonds, EMB, fell heavily. -0.7%
The 10-20 Year US Government Bonds, TLT, -1.3%
The 30 Year US Government Bonds, EDV, -1.4%
World Government Bonds, BWX, -0.6%
The longer out Build America Bonds, BABS have fallen more than the shorter duration BAB.
Mortgage Backed Bonds, MBB, -0.2%
Jody Shenn of Bloomberg reports Standard and Poors may downgrade securities tied to residential mortgages.
International Corporate Bond, PICB, -1.1%
Gus Lubin of Business Insider Jerry Brown: California Budget Is “Much Worse Than I Thought – We’ve Been Living In Fantasy Land”.
VI. Preferred shares fell lower.
Preferred, PGF, -0.6%
VII The fall of currencies, stocks and bonds means that the global investment bubble has been pricked.
The age of securitization is done and over and that the world has fully entered into the age of deleveraging and the age of debt deflation.
Investment securitization company Annaly Capital Management, NLY, fell 2.1%. Unless it can be reconstituted and integrated into the Federal Government in a new way, such as the provision of investment capital under the auspices of Dodd Frank Legislation or the US Treasury, its share value will fall rapidly.
Seigniorage came through the repeal of the Glass Steagal Act led by President Clinton and 92 US Senators, who provided for banking securitization and financial deregulation. The firewall that existed since 1932 and separated investment from personal banking was dismantled and banks developed and marketed lucrative and risky investments such as CDOs and subprime, Alt-A, and Option Arms lending. Today, Joe Rauch of Reuters relates that Bank of America Corp, BAC, is in talks with a group of six investors to settle charges that it mishandled $16.5 billion in mortgages packaged into bonds, the Wall Street Journal reported.
VIII. Given the depth of the European sovereign debt and banking imbroglio, can moneyness be preserved?
A … Moneyness is seigniorage. Moneyness is the credit, tradeability and value of a currency or an investment.
B … Financial deregulation, carry trade loans, modern-day central bank policies, and Leader’s Framework Agreements have provided moneyness.
Seigniorage came through the repeal of the Glass Steagal Act led by President Clinton and 92 US Senators, who provided for banking securitization and financial deregulation. The firewall that existed since 1932 and separated investment from personal banking was dismantled and banks developed and marketed lucrative and risky investments such as CDOs and subprime, Alt-A, and Option Arms lending.
The Bank of Japan ZIRP and associated yen based carry trade lending together with US Federal Reserve Announcements have provided moneyness to real estate financial, futures, stock, bond and currency marketplaces with rating agencies and low levels of credit default swaps and interest rate establishing currencies and investments as money good.
The expectation and actual announcement of the US Federal Reserve Chairman’s FOMC Policy Agreement such as the Quantative Easing TARP Facility, Dollar Swaps, Purchases of Commercial Paper provided moneyness to marketplaces world wide.
Foreign trade loans, that is carry trade loans, by Austrian Banks, EWO, stimulated real estate on business loans in developing Europe, that is eastern European nations, ESR, such as Poland, PLND, Hungary, and Romania.
The Leaders Announcement of an EFSF Monetary Authority, and the provision of seigniorage aid to Greece, and Announcement of Bank Stress Tests, provided moneyness to the Euro, FXE, and it recovered in value from 119 in June of 2010, to 142 in November of 2101.
C … The world passed from the age of leveraging and asset value appreciation … and into the age of deleveraging, and debt deflation on November 4, 2010, when the bond traders seized control of both the Interest Rate on The US 30 Year Government Bond, $TYX, and the Interest rate on the 10 Year US Government Note, $TNX, that were formerly under the control of the US Federal Reserve.
The flattening of the 30 10 US Sovereign Debt Yield Curve yield curve, $TYX:$TNX, came as investors fled the longer out bonds more than they did the shorter duration bonds, as Ben Bernanke’s QE2 monetized debt, and as President Obama’s projected deficit spending developed the risk of a failed US Treasury auction.
November 4, 2010 was a pivot point, that is an inflection point where … the world passed from the age of leveraging, characterised by credit expansion, currency expansion, and increasing consumer discretionary spending, economic growth, inflation in investment value with growing moneyness …. and into the age of deleveraging, characterised by credit contraction, currency contraction, decreasing consumer discretionary spending, economic contraction, and deflation in investment value with the destruction of moneyness.
The world wide investment bubble, and moneyness was pricked by Mrs Merkel calling for a haircut on debt and a call for a sovereign debt default mechanism in late October 2010.
D. The world is very much at a crisis point.
Luke Baker of Reuters reports European Leaders Meet In Summit To Resolve Sovereign And Bank Debt Crisis aware that consensus and decisive action is needed for a comprehensive plan as banks need debt needs substantial reconstitution early next year. German Chancellor Angela Merkel said no country in Europe would be left on its own, and reiterated that the euro was a strong currency that would be defended to the hilt.”We know that the euro is our collective destiny, and Europe is our collective future,” … “Nobody in Europe will be abandoned. Europe will succeed together.”
Given that interest rates are rising at such an upward rate, and currencies are once again propelling stocks, ACWI, and bonds, BND, downward, I believe that the result will be a soon coming Götterdämmerung, that is an investment flameout; and that a Seignior, that is a top dog investment banker, will arise to provide moneyness in a new economic infrastructure.
Gold, GLD, is a currency in addition to being a precious metal. In a debt deflationary environment, it is the only asset that will preserve wealth as all asset classes fall lower.
IX. Volatility rose
S&P Mid Term Futures Volatility, VXZ, rose.
Volatility, VXX, rose.
Inverse Volatility, XXV, fell.
X … In today’s news
Associated Press reports Obama Says He Shares Mission With Business Leaders
Associated Press reports House Votes To Repeal Ban On Open Gays In Military
Simon Falush and Laurenc Fletcher of Reuters report U.S. Equity Investors Most Bullish in 2 Years – Data. U.S. equity investors are more bullishly positioned than at any time in the last two years, figures from Data Explorers show, following a sharp market rally since September. Investors currently have 10.8 times as many long positions as short positions — bets on falling prices — in the United States, the highest since the ratio was calculated two years ago, according to the data. My comment is that this is a contrary indicator indicating great risk for investing long.