Financial market report for Thursday January 6, 2010
I … 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 world’s major currencies, DBV, and the emerging market currencies, CEW, fell lower into an Elliott Wave 3 Down this week, the first week of 2011, as 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
The European Leaders met in summit on December 13, 2010; 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 sell off in the gold mining stocks and sustained flattening of the 30-10 US Sovereign Debt Yield Curve, together with the sell off of the Euro and World Government Bonds as well as International Corporate Bonds in the first week of January 2011 marks the end of credit as it has been known.
The January 5, 2010 sell off in the gold mining stocks, GDX, was 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 turn in the major currencies, DBV, as well as the emerging market currencies, CEW, witnesses the end of 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 again today January 6, 2011, as bond vigilantes called interest rates on sovereign debt higher globally, as is reflected in world government bonds, BWX, and international corporate bonds, PICB, falling lower again today in value as Ambrose Evans Pritchard of The Telegraph relates that EU plans to spread the burden of EU bank failures to senior bond-holders fuelled instability on eurozone debt markets pushing yields on 10-year Greek bonds to a record 12.59%. And as Il Sole 24 Ore reports that the recent auction of €500m in Portuguese six-month bonds saw the yield rise to a record 3.686%, up from 2.045% at the last such sale in September 2010.
Junk Bonds, JNK, likely put a top in at 40.20 today January 6, 2010. This as Tim Catts and Sapna Maheshwari of Bloomberg reported on December 31, 2010: Corporate bond sales worldwide topped $3 trillion for a second straight year, led by the highest-ever issuance of junk-rated debt. Tim Catts reported on December 29: “Companies sold almost twice as much debt with the lowest ratings this year as they took advantage of plunging yields to refinance looming maturities at lower costs. Sales of notes ranked Caa1 or less by Moody’s … accounted for 16% of all junk-rated sales this year, versus 8.5% in 2009 … Junk issuance climbed to a record $289 billion this year, including $46.4 billion ranked in the CCC tier or lower. That compares with $162.7 billion sold last year, of which $13.9 billion had the lowest grades.”
III … A fall in the Euro and in the world’s major currencies, together with the emerging market currencies this week has caused the US Dollar to rise.
US Stocks appear to be topping out. World stocks put in a high on December 31, 2010, and All World Excluding US Small Caps have turned lower.
The fall in the Euro, FXE, as well as the world’s major currencies, DBV, and the emerging market currencies, CEW, has caused the Dollar Bull ETF, UUP, and the US Dollar, $USD, to rise
The chart of the US Dollar, $USD, suggests its objective is most likely 81.20.
US Stocks, VTI, appear to be topping out. Dollar liquidity seems unable to sustain the US Stocks such as the S&P, SPY, the Russell 2000, IWM, and the Merrill Lynch Cyclicals Index, $CYC. Most all dollar liquidity flowed into the Nasdaq 100, QTEC, today.
World stocks, VT, put a high in on December 31, 2010. All World Excluding US Small Cap Stocks, VSS, have turned lower.
India, INP, and India Small Caps, SCIF, have fallen lower on a falling Indian Rupe, ICN.
The UK, EWU, manifested bearish engulfing today suggesting a possible fall lower, this will likely come on a lower falling British Pound Sterling, FXB.
Switzerland, EWL, has fallen lower on a falling Swiss Franc, FXF.
Sweden, EWD, has fallen lower on a falling Swedish Krona, FXS.
South Africa, EZA, has fallen lower on a falling South African Rand, SZR.
Brazil, EWZ, and Brazil Small Caps, BRF, have fallen lower on a falling Brazil Real, BZF.
Russia, RSX, manifested bearish engulfing today, suggesting a possible fall lower, this will likely come on a on a falling Ruble, XRU.
Australia, EWA, and the Australian Small Caps, KROO, have fallen lower on a falling Australian Dollar, FXA.
New Zealand, ENZL, has fallen lower on a falling New Zealand Dollar, BNZ.
Japan, EWJ, and the Japanese Small Caps, JSC, appear topped out today, suggesting a possible fall lower, this will likely come on a falling Japanese Yen, FXY.
India, INP, and the Indian Small Caps, SCIF, have fallen lower on a falling Indian Rupe, ICN.
Canadian Small Caps, CNDA, have fallen lower on a falling Canadian Dollar, FXC.
Indonesia, IDX, and the Emerging Markets, EEM, have fallen lower on falling Emerging Market Currencies, CEW.
Latin America, LATM, has fallen lower.
Austria, EWO, Europe, VGK, and the European Small Cap Dividend Shares, DFE, have fallen lower on a falling Euro, FXE. Behemoth Siemens, SI, has fallen 5.5% so far this week, commencing an Elliott Wave 3 Down.
Stock sectors falling today include
GDX, Gold mining, -2.5%
GDXJ, Junior gold mining, -4.1
IEZ, -2.3%, on falling Oil, USO; the US Dow Jones Energy Service Shares are a short selling opportunity.
OIH, -2.2, on falling Oil, USO, the Energy Service Shares are a short selling opportunity.
XLES, -1.7, the Small Cap Energy Shares are a short selling opportunity.
XRT, -1.4, the Retail Shares are a short selling opportunity.
COPX, -1.0, the Copper Mining shares are a short selling opportunity.
FAN, -1.7, the Wind Shares are a short selling opportunity.
RZV, -1.0. the Small Cap Revenue shares are a short selling opportunity.
CGW, -0.5, the Water Shares are a short selling opportunity.
RWJ, -0.5, the Small Cap Revenue Shares are a short selling opportunity; note the rounded top in the chart.
NLR, -1.1, the Nuclear Shares are a short selling opportunity.
XLIS, -0.2, the Small Cap Industrial Shares are a short selling opportunity.
PNQI, +0.2, the Nasdaq Internet Shares are a short selling opportunity.
EMFN, -2.0% the Emerging market Financial Shares are a short selling opportunity.
EUFN, -0.5%, the European Financial Shares are a short selling opportuntiy.
CAF, -0.9%, the Shanghai Shares are a short selling opportunity.
URTY, -1.3%, the 200% of the Russell 2000 are a short selling opportunity.
The market leaders generally lead the way down; and then the market indices fall lower; these market leaders are short selling opportunities.
Uranez Energy, URZ, -3.2
Gilmcher Realty Trust, GRT, -4.0%
National Oil Well Varco, NOV, -3.6%
Five Star Quality Care, FVE, -2.4%
Centerpoint Energy, CNP, -1.0%
BHP Billiton, BHP, -1.8%
Texas Industries, TXI, -3.0%
NewMarket, NEU, -4.4%
Freeport McMoRan Copper and Gold, FCX, -1.9% is definitely a short selling opportunity.
General Moly, GMO, is also a short selling opportunity.
Kodiak Oil And Gas, KOG, is a short selling opportunity.
Bronco Drilling, BRNC, is a short selling opportunity.
Ion Geophysical, IO, is a short selling opportunity.
American Water Works, AWK, is a short selling opportunity.
Water America, WTR, is a short selling opportunity.
EchoStar, SATS, is a short selling opportunity.
Liberty Media, LCAPA, is a short selling opportunity
Thor Industries, THOR, is a short selling opportunity.
Winnebago Industries, WGO, is a short selling opportunity.
Fluor, FLR, is a short selling opportunity.
Travelzoo, TZOO, is a short selling opportunity.
Chipotle Mexican Grill, CMG, is a short selling opportunity.
Companhia de Bebidas das Americas, ABV, is a short selling opportunity.
KBH Homes, KBH, is a short selling opportunity.
KBH Homes documents the dollar carry trade, that is the US Dollar liquidity trade that came on concern over over the European Sovereign Crisis as well as a presumed flight to safety from the extinguishment of bond wealth by Ben Bernanke’s Quantitative Easing 2. The PE on KBH homes of 79 has nothing, absolutely nothing to do with the profit potential or future economic achievements of this stock.
KBH’s performance has been due to an “extinguishment trade”, that is an good investment that has come from awareness that the European sovereign crisis will extinguish the value of the European shares, as well as the awareness that QE 2 will extinguish bond wealth. It has been a kind of “swing trade”, much like investing in the HUI Precious metal mining stocks, ^HUI, traded by the gold mining stock GDX, which have been the swing trade of the last 10 ten years.The silver mining company Silver Standard Resources, SSRI, has probably seen more yen carry trade investing over its lifespan than any mining stock. Those profiting from the extinguishment trade is much like those who sold their Euros and bought Swiss Francs a year ago, and invested in the Estonia market with gains coming from the convergence trade, where Estonia shares rose strongly prior to it joining the Eurozone.
I find it interesting that the Bonds, BND, deleveraged upon announcement of QE 2; and that the gold mining stocks, GDX, deleveraged on awareness that the European Leaders failed to reach any comprehensive solution to the sovereign crisis. With each investment the downturn came immediately after the Leaders’ Announcement: both announcements were the death warrant for investing long bonds as well as the gold mining stocks. Are we not at another junction now with Ben Bernanke coming out this week announcing a continuation of QE2, and have not the world small cap stocks, VSS, turned down. And have not the European shares VGK also turned down on the Leaders’ plan to have investors take a haircut in bond losses? This as Euro Intelligence reports in article The debt crisis is coming back (2011 edition) wich relates:
“Bonds spreads have been both volatile and rising, as investors are becoming increasingly nervous at the prospect of a record sovereign debt issues this year. Portugal’s latest issue of €500 million in six-month bills came with an average yield of 3.69%, which is more than 200bp higher than it was in September. Irish 10-year yields have been climbing to 9%, Greek 10-year yields to over 12%, well into territory where investors are factoring in a non-trivial default risk.
Yesterday, the Swiss National Bank announced that it would no longer accept Irish government debt as collateral securities in repo reparations. FT Deutschland quotes a spokesman as saying that the securities no longer corresponded to the SNB’s quality criteria. The paper also quoted an analyst as saying that the decision did not help market sentiment right now.
Yesterday was also a bleak day for Spanish banks. Spanish banking stocks fell across the board, according to Bloomberg. BBVA yesterday issued €1.5bn of three-year covered bonds at a spread of 225bp over swaps. Activity in the covered bond market (Pfandbriefe) has been particularly strong all over Europe in the last few days.
Frankfurter Allgemeine has a useful overview of the private and public sector bond issues in the eurozone this month. Banks are currently busy refinancing themselves, partly in anticipation of the large public-sector issues ahead this year. The estimates for eurozone government bond issues in January are about €80bn in January, and €850bn in 2011, plus a further €700bn in treasury bills.”
The fall of the Yen, FXY, from 123, and the fall in the 30 10 Yield Curve, $TYX:$TNX, from 1.60, as well as the unwinding of the Euro Yen carry trade, that is EUR/JPY, seen in FXE:FXY, from 1.16 are the agents that are destabilizing and deleveraging wealth.
I do not practice short selling; I made the decision long ago to invest in and take possession of physical gold. I want my wealth far, far removed as possible from any possible entanglements in a brokerage account.
IV …. Shares rising today included the following
Networking, PXQ, +0.8%
Nasdaq 100, QTEC, +0.9%
Dow Jones Health Care Providers, IHF, 1.5%
Homebuilders, ITB, 1.5%
Semiconductors, XSD, 1.5%
Exxon Mobile, XOM, 0.6%; this as West Texas Intermediate Crude, $WTIC, fell 2%. The 0.2% loss in the S&P would have been much greater had Exxon Mobil traded lower with the energy service companies, OIH. It was the large cap stocks like Ford, F, and Honeywell HON, and Exxon Mobil, that kept the S&P, SPY, loss minimal today. It’s as Bespoke Blog relates Ford Takes Out Another Prior High.
The ongoing five day chart of the S&P, SPY, Dow, DIA, Transports, IYT, Russell 2000 Growth, IWN, and Russell 2000 Value, IWO, show that today July 6, 2010 the Transports, the Russell 2000 Growth and the Russell 2000 Value turned down, while the larger caps, the S&P maintained …. SPY, DIA, IYT, IWO, IWN.
V … Japan manifested a lollipop hanging man candlestick in its chart
Japan, EWJ, manifested a lollipop hanging man candlestick in its chart suggesting that a rally high in the Nikkei, ^N225, is coming in at 10,529.76 today January 6, 2010.
VI … Commodities are at a transition point.
Moneyness coming largely through increasing value in US Sovereign Debt, TLT, and world government debt, BWX, has under written 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, Grains, GRU, Cooking Oil, FUE. It is an important question as CNN Money asks 2011: Year of the bank run?.
Will Heating and Petroleum Oils, DBC, Oil, USO, and Gasoline, UGA, rise in value?
Did a high come in for West Texas Intermediate Crude, $WTIC, on January 3, 2010 at 91.70?
When investors see stocks plummeting will there be a crack up boom in oil?
I lean towards a fall in the major currencies, DBV, and the emerging market currencies, CEW, and soon the US dollar, $USD, and thus I think a high has been achieved in oil. I think gasoline, UGA, baring the outbreak of war, which could come soon to the middle east, peaked out today January 6, 2010 at 42.40.
Has natural gas, UNG, seen a bottom, or will it fall lower yet?
Will Base Metals, DBB, such as Copper, JJC, Lead, LD, Tin, JJT, Nickel, JJN, Aluminum, JJA, retain their highs? I think falling global demand and falling currencies will take base metals lower.
I believe timber, CUT, prices are truly speculative, and I expect them to plummet causing wood manufacturing companies such as Koppers, KOP, to fall rapidly in price.
And finally, how will the individual components effect the price of Commodities Overall, DJP?
VI. The end of credit means the rise of a global Chancellor, a Sovereign, and a global banker, a Seignior.
The world wide financial bubble has been pricked by bond vigilantes calling sovereign debt interest rates higher and by currency traders selling the major currencies and the emerging market currencies, resulting in a what is likely a temporary rise in the US Dollar before it too falls lower again.
The end of credit is suggested by a number of factors such as
1) The EuroIntelligence report: The debt crisis is coming back (2011 edition) “Bonds spreads have been both volatile and rising, as investors are becoming increasingly nervous at the prospect of a record sovereign debt issues this year. Portugal’s latest issue of €500 million in six-month bills came with an average yield of 3.69%, which is more than 200bp higher than it was in September. Irish 10-year yields have been climbing to 9%, Greek 10-year yields to over 12%, well into territory where investors are factoring in a non-trivial default risk.” And Mike Mish Shedlock reports Bonds smacked on sovereign debt financing concern and he reports EU commission plans haircuts on bank debt.
2) Mike Mish Shedlock reports Japan's finances "approach edge of cliff"
3) Junk Bonds, JNK, likely have put a top in at 40.20 today January 6, 2010. The topping out of junk bonds suggests an end to investment liquidity. Junk has “greased the wheels of investment” and it is now likely going to “gum up the wheels of investment”.
4) The Reuters report of Fed Governor and 2010 dissenting voter Thomas Hoenig saying: ”We are setting a precedent for monetizing the debt”
5) The fall lower in the Optimized Carry ETN, ICI, at the end of 2010 documents the end of profitable carry trade investing.
The Morgan Stanley Cyclicals Index relative to the 30 Year US Government Bond, $CYC:EDV, reflects the ability of growth stocks to expand on sovereign debt liquidity. Growth stocks are no longer able to leverage on sovereign debt, as sovereign seigniorage is coming to an end. The growth stocks will now be deleveraging. At the top of the list are stocks like Siemens, SI, Freeport McMoran Copper and Gold, FCX, and Temple Inland, TIN.
Doug Noland writes of the moneyness that has come to stocks via US Federal Reserve policy stating: “The U.S. financial system these days is being completely dominated by the expansion of federal borrowings. This creates different financial and economic dynamics than we’re used to analyzing. In contrast to when mortgage Credit was playing a predominate role during that Bubble period, a rise in market yields today will have virtually no near-term impact on the quantity of (government) Credit being issued. And especially with the extension of Bush era tax cuts along with additional stimulus measures – the speculative U.S. stock market has taken great comfort from the seeming sustainability of the tepid (government-dominated) U.S. economic recovery.”
The HUI Precious Metals relative to the 30 Year US Government Bonds, $HUI:$USB, reflects the ability of gold mining stocks to ride a steepening yield curve up for a good investment return. The gold mining stocks are no longer sustained by liquidity in US Government debt. There comes an end to all to all fiat asset investments, even the best performing gold mining stocks, such as Almaden Minerals, AAU, and Gold Fields Ltd, GFI and New Gold, NGD, and Nevsun Resources, NSU, are turning lower.
And now the Small Cap Energy shares XLES are falling lower, due to a diminished US dollar liquidity trade.
Some nations, like Greece and Ireland have lost debt sovereignty are are dependent upon seigniorage aid. These nations no longer have a central bank, they depend upon a federal bank, the ECB, for fiscal liquidity.
These nations are no longer sovereign nations; they fall under regional economic governance, specifically European economic governance. National sovereignty was waived as the Leaders announced Leaders’ Framework Agreements with European and IMF officials. The people of Greece and Ireland are no longer residents of sovereign nation states, rather they are residents living in a region of global governance.
Gold is not only a commodity, it is the premier currency; the chart of gold in Australian Dollars, GLD:FXA, communicates that wealth is best preserved by investing in gold. This as Monami Yui of Bloomberg reported on December 30, 2010: “The Australian dollar traded near the highest level since 1982.”
A catastrophe is coming as a result of rising European sovereign debt interest rates, ailed sovereign debt auctions, sovereign debt default, and plummeting bank stock values, as well out of further global competitive currency devaluations at the hands of the currency traders. Soon, the European Financial Institutions, EUFN, will fall quickly falling in value, taking the entire global financial system down, resulting in Götterdämmerung, an investment flame out.
Out of chaos, a Chancellor, that is a Sovereign, will arise to establish order. This will likely be a European Leader, who has credentials, such as that of having been awarded the Charlemagne Prize. Candidates for the EU Leadership include Herman van Rompuy, Angela Merkel or John Redwood or Tony Blair.
With the death of traditional central bank seigniorage, a Banker will arise to establish a new credit regime. Candidates for Financial Leadership include Wolfgang Schäuble, or Olli Rehn, or Jean-Claude Trichet, or Gordon Brown or Jose Manuel Barroso.