Financial market report for January 5, 2010
I … The HUI Precious Metal Mining Stocks, ^HUI, traded by the ETF, GDX, have been one of the investment success stories of the past decade.
Gold mining stocks have been the ultimate swing trade rising on the price of gold, on economic growth and expansion, as seen a rising Morgan Stanley Cyclicals Index, $CYC, and on a formerly steepening 30 10 US Government Debt yield curve, $TYX:$TNX. Yet at market turns, historical research shows that they generally turn lower with US Treasuries, as is seen in the chart of $HUI:$USB.
The gold mining stocks, GDX, manifested bearish engulfing on Monday January 3, 2010, and fell lower January 4, 2010, the day of the FOMC meeting making them, as well as the Junior Gold Mining Shares, GDXJ, as well as Silver Standard Resources, SSRI, a sell, as well as a short selling opportunity; they fell 1% lower today to the edge of a head and shoulder pattern.
The chart of the gold mining stocks, GDX, relative to gold, GLD, that is GDX:GLD, shows that these have disconnected from the price of gold and no longer serve as a vehicle for growing and preserving wealth. It is most striking that this disconnect occurred immediately before the European Leaders met in summit, and of which John Mauldin said in Safehaven.com article, the Leaders were kicking the can down the road, in not providing a comprehensive solution to the European Sovereign and Bank Debt Crisis.
II … The world passed from The Age Of Leveraging and stock value appreciation … And into The Age Of Deleveraging and debt deflation, that is currency deflation, On November 4, 2010.
This was when the bond vigilantes 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, as Ben Bernanke announced QE 2. And as a result, during the week of November 8, 2010, the 30 Year US Government Bond, EDV, and the 10-20 Year US Government Bonds, TLT, fell sharply.
Bonds, BND, US Government Bonds, such as EDV, and TLT, World Government Bonds, BWX, International Corporate Bonds, PICB, Longer Duration Corporate Bonds, BLV, Corporate Bonds, LQD, the emerging market currencies, CEW, fell lower into an Elliott Wave 3 Down today, Wednesday, January 5, 2010, the day after the US Fed Reserve met and reconfirmed its Quantitative Easing II, QE 2, of which Fed Governor and 2010 dissenting voter Thomas Hoenig says: "We are setting a precedent for monetizing the debt” as Reuters reports.
Today’s sell off in the gold mining stocks is a de-risking out of long term financial assets that comes with a flattening of the 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX, that came when the Fed Chief announced his plans for QE 2 in November, as well as in August 2010. It was at both prior times that investors sold out of the longer duration US Government Debt, that is the 30 Year US Government bond, EDV,
The chart of the 30 Year US Government Bond, EDV, compared with the 10 to 20 Year US Government Bonds, TLT, Longer Duration Corporate Bonds, BLV, the gold mining stock Rangold Resources, GOLD, the Gold Mining Stocks, GDX, the gold ETF, GLD, the All World Excluding US Small Stocks, VSS, the Russell 2000 Growth, IWO, and the Russell 2000 Value, RZV …. EDV, TLT, BLV, GOLD, GDX, GLD, VSS, IWO, RZV … communicates that gold mining stocks are now being heavily turned down by a flattening 30 10 US Sovereign Debt yield curve; it is interesting that gold miner Rangold Resources, GOLD, topped out in October and entered an Elliott Wave 3 Down as QE 2 was introduced in November 2010.
All of the following gold mining stocks have entered an Elliott Wave 3 Down: AEM, ANV, ASA, AZK, GBG, GFI, GSS, NEM, NGD, and KGN. The fall of the gold mining stocks and the crash of US Sovereign debt, EDV, and world government sovereign debt, BWX, as well as international corporate bonds, PICB, and the down the major currencies listed below as well as the emerging market currencies, CEW, today December 5, 2010, witnesses the nail in coffin for the era of economic growth and expansion by the bond vigilantes in calling interest rates higher globally and the currency traders reintroducing the competitive currency devaluations of November 4, 2010 when Ben Bernanke introduced QE2, and Mrs Merkel called for a sovereign debt default mechanism.
The Euro, FXE, plummeted to close at 131.04 as bond vigilantes called the Interest Rate on the 30 Year US Government Bond, $TYX, higher. Higher US Interest rates means falling currency values globally; soon, the higher 30 Year US Government Interest Rate will mean a falling US Dollar.
The fall in the Euro, induced European, VGK, Germany, EWG, Spain, and EWP, lower.
III … Currency losses today were as follows
Swiss Franc, FXF, -1.8% Switzerland EWL fell 1.4% making it a short selling opportuntiy.
Japanese Yen, FXY, -1.5%
New Zealand Dollar, BNZ, -1.2%
Euro, FXE, -1.1%
Indian Rupe, ICN, -0.8%
Swedish Krona, FXS -0.8%
Brazilian Real, BZF, -0.7% Today’s 1.1% fall in BRF, makes them a short selling opportunity
Australian Dollar, FXA, -0.6% Today’s 1.1% fall in KROO makes them a short selling opportunity.
Russian Ruble, XRU, -0.6%
British Pound Sterling, FXB, -0.5%
Emerging Market Currencies CEW, -0.5%
I find it strange that the Yen, FXY, fell so significantly compared to the other currencies today; perhaps it did so in sympathy with falling debt globally, marking even an end to investing long with yen carry trade loans.
Today’s 1.7% fall in Taiwan, EWY, makes it a short selling opportunity.
Today’s 2.0% fall in Austria, EWO, makes it a short selling opportunity.
Today’s 2.0% fall in Repsol, REP, makes it a short selling opportunity.
Today’s 1.0% fall in Belgium, EWK, makes it a short selling opportuntiy.
Today’s 1.0% fall in India Small Caps, SCIF, makes it a short selling opportunity.
The fall in the currencies listed here, caused disinvestment from International Basic Materials, DBN, International Dividend Payers, DOO.
The Swiss Franc is falling faster than the Euro, as is seen in the Swiss Franc Euro Carry Trade, FXF:FXE, unwinding quickly as investors rush to sell out of their investment marking an end to convergence carry trade as Estonia is now part of the Eurozone. The Swiss Franc Euro carry was most likely one of the most profitable carry trades of all investment history.
The US Dollar, $USD, rose 1% to close at strong, very strong, resistance at 80.23 I am of the conviction that the US Dollar will rise for a while; at least till it hits 81, as major currencies, DBV, and emerging market currencies, CEW, continue falling.
The rise in the US Dollar, $USD, and a strong fall in the Yne, FXY, caused the USD/JPY to rise and its inverse ETF JYN, to fall lower.
Gold is a currency; the world’s sovereign currency, and its ETF, GLD, could easily fall lower to 132 or 131 or 130 before moving higher in a commodities driven crack up boom, as stocks and bonds fall significantly lower.
IV World Stocks rose, but World Small Caps fell, as US Stocks moved to a new high.
World stocks, VT, traded up slightly today; but closed below their January 3, 2010 high of 48.23. All World Small Cap Stocks Excluding the US, VSS, fell lower today. US Stocks, VTI, moved to a new high on US Dollar liquidity.
The S&P, SPY, put in a new high at 127.64. It was the large cyclical stocks like Citigroup, C, Deere, DE, Eaton, ETN, Ford Motor, F, International Paper, IP, Magna, MGA, Johnson Controls, JCI and Masco, MAG, were responsible for the S&Ps new high.
V... Monies coming out on Bonds, BND, flowed into Junk Bonds, JNK, which rose to a new high
The distressed investment mutual fund, FAGIX, whose value approximates, that is reflects the value of assets taken in by the US Federal Reserve under QE 1’s TARP facility. Yes it is true the holdings of the US Federal Reserve, are for the most part rated as Junk, and surprisingly for the last five trading days, junk has outperformed gold.
VI. An ongoing US Dollar liquidity trade carried US Shares and US Based international shares higher.
US Stocks, VTI, rose.
The metric or index of economic growth and expansion, the Morgan Stanley Cyclicals Index, $CYC, rose to a new high. The rise in the Morgan Stanley Cyclicals Index, $CYC, has nothing to do with growth potential; it has everything to do with the final refuge of moneyness. Yes, moneyness came to the Morgan Stanley Cyclicals out of desperation as investors fled bonds, BND, and European shares, VGK.
Freeport McMoRan Copper and Gold, FCX, fell lower. While, Citigroup, C, Deere, DE, Eaton, ETN, Ford Motor, F, International Paper, IP, Magna, MGA, Johnson Controls, JCI and Masco, MAG, rose higher on US Dollar liquidity; these large cap S&P stocks received today’s carry trade cool aid. The smaller cap retail ETF, XRT, likely topped out January, 3, 2010.
In contrast, European based, and Euro influenced Siemens, SI, fell sharply lower today. German shares, EWG, have become a short selling opportunity. The only reason the S&P, SPY, the Russell 2000, IWM, and the Nasdaq 100, QTEC, and the New York Composite, NYC, rose, was because of a dollar carry trade benefiting them. The S&P, SPY, has been moving higher on currency events; the most recent have been the inflow of dollars from the European Sovereign Debt Crisis of November, then after the European Leaders met in Summit on December 13, 2010 and as John Mauldin relates simply were kicking the can down the road and now today January 5, 2010 as number of the world currencies fall lower.
Financials, XLF, Banks, KBE, and Community Banks, QABA, Semiconductors, XSD, Networking, PXQ, Internet, HHH, Dow Internet, FDN, Nasdaq 100, QTEC, rose on dollar carry trade moneyness. Gains in these sectors, and individual stocks such as Brush Engineered Materials, BW, Texas Industries, TXI, NewMarket, NEU, Apache Oil and Gas, APAGF, Bronco Drilling, BRNC, ION Geophysical, IO, Citigroup, C, Cathay Bancorp, CATY, KB Homes, KBH, Acme Packet, APKT, F5 Networks, FFIV, were totally due to a liquidity trade, specifically a US Dollar liquidity trade and nothing, absolutely nothing to do with the future profitability of the individual companies.
Semiconductors, XSD, rose on strong gains in AXTI, IPGP, NVDA, SWKS, and TQNT.
Today’s rise in Nasdaq Internet, PNQI, makes it short selling opportunity, as one sells into strength in bear markets. It’s rise came on Travelzoo, TZOO, Priceline, PCLN and Internet Capital Group, ICGE.
Today’s 3.3% rise in URTY has established it, that is has reset it as a good short selling opportunity.
Today’s 2.0% rise in Home Building, ITB, establishes it also as a short selling opportuntiy.
Today’s 2.0% rise in Leisure and Entertainment, PEJ, establishes it too as a short selling opportunity.
Today’s 0.7% rise in US Energy Service, IEZ, establishes it as a short selling opportuntiy.
Today’s 1.5% rise in Energy Service, OIH, establishes it as a short selling opportunty; and suggests that National Oilwell Varco, NOV, is a short selling opportunity.
The turn lower in the Global Water Index, CGW, establishes, Water Stocks such as Aqua America, WTR, as a short selling opportunity and American Water Works, AWK, as short selling opportunities.
VII … Utility Shares and other things deflationary.
The chart shows that the Utilities, XLU, fell lower in an Elliott Wave 3 of 3 Down today. Utilities are showing the way into a debt deflationary future.
International Utilities, IPU, fell lower on rising interest rates and on the lower Euro.
Debt deflation is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
James Turk writes Serious Problems Ahead For The British Pound: Last week the British, FXB, pound fell 3.0% against the US dollar. Some say it was because of UK bank exposure to Spain, which Moody’s warned could be downgraded. Others blamed the UK’s close economic link and heavy debt exposure to Ireland, which Moody’s did actually downgrade last week by 5-levels to Baa1. This low grade is barely above junk status. These downgrades in different corners of Europe no doubt had some impact on Sterling’s weakness, but there is I think another factor closer to home. It is the growing awareness of the runaway spending and borrowing by the British government. Despite all the rhetoric and promised cuts in spending by the newly elected coalition, the hard fact is that government spending and borrowing continue to soar – and look as if they are spiraling out of control (as can is highlighted in the chart entitled UK Tax Receipts Tumble As Outlays And Debt Soar).
The chart of the British Pound Sterling, FXB, shows that it is in an Elliott Wave 3 of 3 Down. And the chart of The United Kingdom, EWU, shows that today it has fallen lower in an Elliott Wave 3 Down.
TheNorte blog reports that according to BBC Business News word is that HMV will be closing 60 of their stores in the UK over the next year in order to get their costs under control!! This is because they have fallen 21% after revealing falling sales, weak profits and trouble meeting the terms of a bank loan. HMV Group are saying due to the severe weather conditions and “challenging trading conditions” during the Christmas period their sales fell dramatically! Statistics show like-for-like sales for the crucial five weeks to 1 January were down 10.2% on last year, due to a 13.6% slump at its HMV music stores in the UK and Irish Republic.
US based Zumiez, ZUMZ, is similar to HMV in that it markets discretionary goods; it has been in a strong sell off; but it got the trade liquidity cool and rose higher today, saving it from falling sharply lower; the same is true of Lululemon Athletica, LULU.
The small caps consumer discretionary, XLYS, have started into a sell off as the larger caps such as Liberty Media, LCAPA, and EchoStar, SATS, are topping out.
VIII … Will a sovereign debt and bank debt imbroglio in Europe destabilize the world financially?
EuroIntelligence in article Rising oil prices send eurozone inflation above ECB’s target reports: “Eurozone inflation rose to 2.2% in December, driven entirely by rising commodity prices; ECB unlikely to react to the increase, but Yves Mersch is already warning that stimulus policies must end now; inflation likely to rise further as oil prices have since continued to increase; EIA warns that rise in oil prices could lead to a significant slowdown in OECD grow.” There are those who publish on the Internet or through brokerage newsletter or by subscription newsletter encouraging one to stay fully invested long; but the independent writers are communicating a slowdown in growth; this translates into falling stock prices globally; a case in particular is China, FXI, or even better Shanghai shares, CAF. It’s true, rising commodity prices, particularly gasoline, UGA, food, FUD, agriculture, RJA, petroleum, DBC, oil, USO, cooking oils, FUE. together with rising interest rates are going to be turning profits down and turning stocks lower.
Economist Charles Wyplosz of Vox.org, questions, Is the Worst of Europe’s Crisis Behind Us? Or Yet to Come? and states: “One interpretation of recent policy responses is that crises offer unique opportunities to transform existing arrangements. In this view, the unprecedented bailouts offer a unique chance to take a definitive step to some form of fiscal federalism as a way of making what the late Padoa-Schioppa called “a currency without a State” less of an oddity. This is an audacious bet. As any bet, it holds great potential rewards but it also carries risk.”
“Continuing to raise the ante in 2011 may fulfil the dreams of those who have seen the euro as a step towards deeper integration. It could as well trigger a disintegration of the patiently achieved construction that started in 1958 with the Treaty of Rome.”
Personally, I believe that out of a soon coming Eurozone financial implosion, a Chancellor, that is a Sovereign, and also a Banker, a Seignior, will arise to provide fiscal federalism and economic governance for Europe, and most likely the world.
We are witnessing the end of credit as it is known. Moneyness coming largely through increasing value in US Sovereign Debt, TLT, and world government debt, BWX, has underwritten growth and investment in all kinds of stocks, both large, SPY, and small, VSS. But a falling 30 10 US Sovereign Debt, $TYX:$TNX monthly. and a falling Yen, FXY, means that the world has passed through an inflection point: the world has passed from the age of leverage and growth … and into …. the age of delveraging and stock market asset deflation. When investors get that concept in their minds there is likely to be a crack up boom in gold, GLD, silver, SLV, agricultural commodities, RJA, food commodities, FUD, cooking oil, FUE, as well as oil, DBC and USO.
Yes, the end of debt as Huw Jones of Reuters reports EU Targets Senior Creditors at Ailing Banks. All bondholders should be forced to take losses in an ailing bank under draft European Union proposals which aim to avoid taxpayers again having to fund bailouts in the next crisis. The EU's executive Commission is due to publish the consultation paper as soon as this week to shape its crisis management legislative proposals later in the year. The paper obtained by Reuters said writing down a bank's stock and subordinated debt may not be enough at times and that national resolution authorities will need "additional writeoff" powers. The EU executive proposes a tiered model beginning with writedowns of equity and subordinated debt, with senior debt next in line.
IX … Summary
I do not practice short selling as I am concerned that during an investment crisis, one may not have full access to one’s funds at the brokerage; I am not concerned so much about return on my investment as I am of return of my investment.
I strongly recommend purchasing gold as it dips lower, if it dips lower that is, as in a bull market one buys in dips and in a bear market one sells into strength. Gold, GLD, as I have said above will be going higher when investors panic over falling stocks prices. The precious metals futures, JJP, could easily fall lower to 72.5 before moving higher.