Financial Market report for Thursday December 20, 2012
1) … Liberalism has reached its zenith as monetary inflation finally turns toxic, topping off world stock values as debt deflation, that is on currency deflation, gets underway.
Hans-Hermann Hoppe communicates that Hayek and Mises, were each in their own way, proponents of Liberalism. He is an Austrian School economist and anarcho capitalist philosopher, is professor emeritus of economics at UNLV, a distinguished fellow with the Ludwig von Mises Institute, and founder and president of The Property and Freedom Society and wrote Why Mises (and not Hayek)? on the Mises website which was reproduced in Economic Policy Journal.
Inflationism is transitioning to Destructionism, and as a result the world is pivoting from Liberalism to Authoritarianism. Liberalism arose with LBJ's Great Society Programs, developed firmly with the advent of the Milton Friedman Free To Choose Floating Currency Regime, then accelerated with the introduction of the Euro Currency, took on a mature form with the repeal of the Glass Steagall Act whereby we all became bankers, then became the global economic and political paradigm with the rise of the price of gold and the quest for energy development worldwide in 2001, which inflated the value of oil companies such as Exxon Mobil, XOM, and energy service companies such as Schlumberger, SLB, higher, and which confirmed Crony Capitalism, European Socialism and Greek Socialism as mankind's economic experience.
Today, Thursday December 20, 2012, World Stocks, VT, World Small Cap Stocks, VSS, US Stocks, VTI, topped out on the exhaustion of the words central bank's monetary authority. And Emerging Markets, EEM, and the Russell 2000, IWM, traded to new market highs as well; the latter coming from seigniorage of US Regional Banks, KRE, rising in value, and from a rising, and culminating Currency Demand Curve, RZV:RZG, that is the ratio of the Small Cap Pure Value Shares, RZV, relative to the Small Cap Pure Growth Shares, RZG. Currencies have been in all out demand, forcing the value of the US Dollar, $USD, down to 79.27; and forcing down the price of real assets, such as Gold, GLD, and Silver, SLV. Copper, JJC, is a speculative asset, held in great abundance warehouses as collateral for a shadow banking system in China; and today it plummeted 1.9% in value. Carolyn Cui wrote the September 10, 2012 WSJ article Copper surplus presents puzzle just before copper led the way higher in Liberalism's final debt and currency based risk on momentum rally. The ongoing Yahoo Finance chart of Distressed Investments, like those taken in by the US Fed in QE1, FAGIX, together with Senior Bank Loans, BKLN, Junk Bonds, JNK, Leveraged Buyouts, PSP, and Spin Offs, CSD, communicates that it has been the riskiest of debt that has supported the global currency rally that has driven up stocks. Ben Bernanke took in the worst of debts, at the encouragement of JP Morgan, JPM, and traded out "money good" US Treasuries to spur a recovery. Beginning in December 2012, the US Treasuries, TLT, and EDV, started trading lower, as bond vigilantes have seized control of the Ten Year US Government Note Interest Rate, ^TNX.
The biggest risk humanity face as a result of the Fed's QE4, and the ECB's OMT unprecedented experiment in quantitative easing, that has produced investor confidence and the decline of risk aversion, with World Stocks, VT, rising 12%, and World Small Cap Stocks, VSS, rising 15%, in a risk-on Major World Currency, DBV, and Emerging Market Currency, CEW, momentum rally, over the last seven months, is that monetary easing has crossed the rubicon of debt monetization, and that the world has passed through Peak Credit, with Bonds, BND, trading lower on the exhaustion of the world central banks' monetary authority. It can be said "The Fed's policies ceased to work beginning in December 2012", inasmuch as its monetary policies are now causing debt deflation, specifically deflation in bonds. Through a steepening 10 30 US Sovereign Debt Yield Curve, $TNX:$TX, seen in the Steepner ETF, STPP, rising, deflation started in Aggregate Credit, AGG, in December 2012 as follows:
Closed End Michigan Bonds, MIW, -10.2
Closed End Pennsylvania Bonds, EIP, -7.4
California Municipal Bonds, CMF, -2.9%
High Yield Municipal Bond, HYMB, -2.2%
Municipal Bonds, MUB, -2.6%
The Zeroes, ZROZ, -4.6%,
30 Year US Government Bonds, EDV, -8.9%, the chart shows a strong fall through channel support
10 Year US Government Notes, TLT, -2.9%, the standard bearer of debt broke down 12-18-2012.
Build America Bonds, BABS, -1.4%
Long Duration Tips, LTPZ, -1.0%
Long Duration Corporate Bonds, BLV, -1.8%
Corporate Bonds, LQD, -0.6%
Total Bonds, BND, -0.4%
A see-saw destruction of fiat wealth is underway as the Steepner ETF, STPP, broke out on a steepening 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, which drove Total Bonds, BND, sharply lower, while Junk Bonds, JNK, Leveraged Buyouts, PSP, Senior Bank Loans, BKLN, Spin Offs, CSD, as well as Distressed Investments like those taken in under QE1, and traded by Fidelity Mutual Fund, FAGIX, have risen to new highs. Of note, the WSJ reports, U.S To Sell Bulk of TARP Banks. The Yahoo Finance Industry Center reports Closed End Debt Funds, traded lower for the fifth day, with the Closed End Municipal Debt Funds, such as Michigan Municipal Bonds, MIW, and Pennsylvania Municipal Bonds, EIP, traded strongly lower.
Bespoke Investment Group reports 10-Year Yield Crosses Above 200-Day Moving Average. The rise of the benchmark Ten Year Interest Rate, ^TNX, to 1.80% means that the bond vigilantes have gained a nascent control of the bond market. Ben Bernanke and Mario Draghi's monetary policies have turned the springs of credit toxic, whereby US Treasury Notes are falling lower in value, and stocks are only marginally or selectively increasing in value. Charts show that the highest degree of loss of trust has come in global debt is centered in US Debt as reported above.
US Government Debt began falling in value in December 2012. US Treasuries have now entered their third week of falling, with 10 Year US Government Notes, TLT, -2.9%, and the 30 Year US Government Bonds, EDV, -8.9%, so far this month.
Credit liquidity under Liberalism, has produced Peak Seigniorage, that is peak moneyness, coming to World Stocks, VT. Debt monetization by the world central banks is starting to turn "money bad", as is seen in the trade lower in the World Major Currencies, DBV. With currencies trading lower in value, the fiat money system is dying; it will be replaced by the diktat money system, where diktat serves as credit, money and wealth. Leaders will react to a soon coming global debt crisis, that is a global banking and financial implosion, termed Financial Apocalypse, brought on by competitive currency devaluation, by meeting in summits, and waiving national sovereignty, pooling sovereignty regionally, and announcing regional framework agreements for regional security, stability and sustainability. In this manner, the Milton Friedman Banker Regime will be replaced by the Mario Draghi Beast Regime of Regionalism and Totalitarian Collectivism, which will come to rule in the world's ten regions and in all of mankind's seven institutions. Soon the only "money good" will be diktat, and physical ownership of gold bullion and possession of gold in Internet trading vaults such as Bullion Vault.
Inasmuch as Total Bonds, BND, and Aggregate Credit, AGG, have turned lower, the world has passed through Peak Credit. Peak Wealth was achieved December 20, 2019, when World Stocks, VT, topped out. With the Major World Currencies, DBV, trading lower, Liberalism collapsed December 20, 2012.
Bespoke Investment Group write The world is overbought. While some are expecting the world to end tomorrow, the stock market certainly doesn't seem to think it's going to happen. Of the dozens of country and regional ETFs that we track, nearly all of them are in overbought territory. I relate that I perceive the most overvalued countries to be ARGT, EIRL, EIS, EPHE, EPOL, ECNS, EWO, EWW, EWY, EWG, GREK, SCIN, THD, TUR EWA, EWN, NORW, and EWT, which are seen, in this Finviz Screener. These republics of carry trade investing are a product of the now defunct Milton Friedman Free To Choose Floating Currency Regime, and will be relegated to the dustbin of history, as the Mario Draghi Regionalism And Totalitarian Collectivism Regime, comes to be the economic model in the world's ten regions.
The Business Cycle, that is the Debt Super Cycle, transitioned into Kondratieff Winter, as debt deflation, that is currency deflation commenced today, December 20, 2012, on the exhaustion of the world central banks' monetary authority, with the Major World Currencies, DBV, trading significantly lower from their recent high, and Emerging Market Currencies, CEW, trading up to a new high. The Swiss Franc, FXF, and the Euro, FXE, continued their rally higher. Commodity Currencies, CCX, bounced at their market top, as the Australian Dollar, FXA, and the Canadian Dollar, FXC, traded strongly lower. The competitive currency devaluation loss leaders is the Japanese Yen, FXY, which traded lower again today to close at 116.17. The 200% US Dollar ETF, UUP, traded to a firm base at its September 14, 2012, value of 21.65, and the US Dollar, $USD, closed at 79.27.
The Euro, FXE, closed higher at 131.46, as Sky News report S&P lifts Greece's sovereign debt rating, inducing Greece, GREK, Ireland, EIRL, Spain, EWP, Italy, EWI, and Germany, EWG, GERJ, higher, and taking European Shares, VGK, to a new rally high. Poland, EPOL, Austria, EWO, Norway, NORW, Netherlands, EWN, Sweden, EWD, Switzerland, EWL, continued their rally.
The Nikkei, NKY, and Japanese Small Caps, JSC, traded strongly higher. China, FXI, ECNS, CAF, EWH, Egypt, EGPT, Brazil, EWZ, EWZS, The UK, EWU, EWUS, Thailand, THD, Russia, RSX, ERUS, South Korea, EWY, rose slightly to new highs. Taiwan, EWT, and Turkey, TUR, traded lower. Sectors trading higher over the last few days include Solar Energy, TAN, Airlines, FAA, Automobiles, CARZ, Global Real Estate, DRW, Gaming, BJK, Networking, IGN, US Infrastructure, PKB, Consumer Discretionary, IYC, Small Cap Industrials, PSCI, and Small Cap Pure Value, RZV.
World Banks, IXG, seen in this Finviz Screener, continued higher, producing Liberalism's Peak Prosperity. These were led by Japanese Banks, MTU, NMR, SMFG, MFG, Brazil Banks, ITUB, BBD, BSBR, UK Banks, LYG, HBC, BCS, RBS, Argentina Banks, BBVA, GGAL, India Bank, IBN, Canadian Banks, RY, BNS, CM, TD, BMO, Chinese Banks, CHIX, Swiss Banks, UBS, CS, and the Too Big To Fail Banks, RWW, BAC, BK, C. Bank of America has risen 106% YTD.
The Telegraph reports Libor scandal threatens to create a banking crisis to rival 2008. It comes to something when one of the world's major banks admits to fraud, but that's what UBS did On Wednesday in agreeing to pay $1.5bn (£940m) in fines for rigging inter-bank interest rates. Yahoo Finance chart shows that UBS has been one of Liberalism's final risk on momentum rally leaders, for the last seven months, having risen 37%.
Liberalism's seigniorage, that is moneyness, is failing on the exhaustion of the world central banks' monetary authority. The Calamos Total Return Fund, a closed end equity fund, CSQ, and the Eaton Vance Tax Advantaged Fund, EXG, a foreign closed end equity fund, both traded lower from their recent highs. Yahoo Finance chart shows that the closed end equity funds are unable to leverage higher on the closed end debt funds, such as Pimco's PFL, communicating a failure of Liberalism's seigniorage.
Liberalism commenced with the abandonment of the gold standard in 1971, when President Nixon, and the financial world decided to go with the Milton Friedman Free To Choose Floating Currency Regime. The sound money commodity money system was abandoned for today's fiat money system, which is failing, as the Major World Currencies, DBV, are now trading lower, and the Emerging Market Currencies, CEW, have topped out, which are now following Bonds, BND, that is Aggregate Credit, AGG, trading lower from their early December 2012 highs. Failing Major World Currencies, DBV, topped out World Stocks, VT, today, December 20, 2012.
The dynamos of global growth and corporate profit, that powered Liberalism, are winding down. The dynamos of regional security, stability and sustainability that power Authoritarianism, are winding up.
Liberalism's fiat money system is dying; and is being replaced with Authoritarianism's diktat money system, where diktat serves as credit, money and wealth.
Soon an investment demand for gold, will arise, and take gold, GLD, higher. Wealth can only be preserved by investing in and taking possession of physical gold in the form of gold bullion or by possession in Internet trading vaults, such as Bullion Vault. Support for gold is lower at 157.50, which translates into a spot price of gold, $GOLD, of $1,620
Since early June 2012, the Industrials, IYJ, have soared above the Transports, IYT as is seen in this ongoing Yahoo Finance Chart, but in the last month, the Transports, IYT, have exceeded the Industrials, IYJ, as in seen in this ongoing Yahoo Finance Chart.
The ETFs seen in this Finviz Screener will be fast fallers as competitive currency devaluation picks up steam. Investors will be rapidly derisking out of PSP, IGN, CUT, IBB, KBWY, RZV, QQQX, FAA, CARZ, BJK, CSD, TAN, FXR, TAO, DRW, URTY, SPHB, CAF, XRT, and ZIV.
The Morgan Stanley Cyclical Index, ^CYC, which is traded by FXR, has rallied with, and outperformed World Stocks, VT, for the last seven months, traded higher to 1052, as investors took US Banks, RWW, BAC, BK, C, Miners, PICK, AA, FCX, VALE, BHP, RIO, SCCO, WLT, MCP, HW, BTU, WLB, Steel Manufacturers, SLX, MT, ROCK, NUE, MUSA, HSC, CHOP, Metal Manufacturers, XME, WOR, STLD, SMS, SCHN, HAYN, ATI, CRS, VMI, PCP, RS, GHM, GTLS, Building Materials, BECN, AOS, APOG, OC, MAS, USG, Paper Producers, WOOD, WY, IP, UFS, KS, BLL, MWV, PCL, PKG, SEE, LPX, DEL, Farm and Equipment Manufacturers, BGG, DRC, CAT, DE, TEX, MTX, Industrial Electrical Equipment Manufacturers, ROK, AME, ETN, DAKT, Industrial Gasses, ARG, Appliance Manufacturer, WHR, Global Conglomerates, UTX, GE, MMM, Railroads, UNP, CNI, CSX, Cement Manufacturers, TXI, EXP, Chemical Manufacturers, DD, DOW, EMN, HUN, ASH, FMC, ASH, SHLM, RTK, Communication Providers, S, RIMM, SKM, VIP, IDCC, TU, SKM, RCI, Aerospace Manufactuers, BA, HON, MOG-A, LLL, LMT, GD, RTN, Scientific Instrument Manufacturers, ROP, A, GRMN, TRMB, Medical Device Manufacturers, IHI, MDT, ISRG, RMD, ZMH, WAT, HOLX, Toy Manufacturer, MAT, Entertainment Providers, GCI, NFLX, DISH, DTV, DISCA, VMED, VIAB, TWC, LBTYA, CMCSA, SATS, SIRI, AMCX, SJR, NSR, Rubber Manufacturers, GT, CSL, CTB, ROG, Houseware Manufactuers, NWL, CLX, LBY, Cleaning Products Manufacturer, ECL, Home Builders, ITB, LL, SHW, HD, LOW, PHM, MHO, RYL, SPF, Automobile Manufacturers, CARZ, MGA, F, PCAR, SUP, DORM, TSLA, TRW, DAN, FSS, WBC, TEN, and Tool Manufacturer, ITW, higher.
The Morgan Stanley Cyclical Index, is a measure, that is a metric, of global growth. It's peaking out on December 20, 2012, highlights the zenith of Liberalism and the dawn of Authoritarianism.
The Milton Friedman Free To Choose Floating Currency Regime was established for two purposes. First to provide floating currencies, based upon debt, that is sovereign debt, BWX, Emerging Market Debt, PCQ, Corporate Debt, PICB, Mortgage Backed Bonds, MBB, Municipal Bonds, MUB, Leveraged Buyouts, PSP, and Junk Bonds, JNK. And secondly to establish the US as a global empire, by unshackling it from the restraints of the existing sound money system, where through monetization of debt, it could grow and expand its military world wide. Through US Dollar hegemony, the US became one of two great iron empires, the first being the United Kingdom, and the second the US.
With Peak Seigniorage having been achieved, on December 20, 2012, and with competitive currency devaluation underway with the trade lower in World Major Currencies, CEW, and Emering Market Currencies, CEW, peaking out, the two iron legs of world power, that is the UK and the US, are dissolving into ten toes of iron diktat and clay democracy, forming the ten toed kingdom of regional governance. These ten toes will be the ten regional blocs that the Beast Regime of Totalitarian Collectivism and Regional Governance comes to rule over..
The Milton Friedman Free To Choose Floating Currency Regime was very effective at creating the extractive and manufacturing products to produce global growth. Now excess extractive and building capacity exists as Bloomberg reports Diggers pile up unsold after Caterpillar adds to China capacity. Caterpillar, CAT, Komatsu, 6301, and other construction-equipment makers have built enough capacity in China to satisfy global demand twice over while sales in the country are falling, according to a research company. Manufacturing capacity in China is almost 600,000 excavators a year while the worldwide market is about 300,000, according to London-based Off-Highway Research. Inventories of crawler excavators in China are about 100,000, almost equal to projected 2012 domestic sales, the firm's Managing Director David CA Phillips said. The supply glut is a blow to Peoria, Illinois-based Caterpillar and its competitors who built factories and bought local companies to grab a share of the biggest construction equipment market. Now, with government property controls slowing construction, those companies are cutting output and trying to export unsold equipment. "It's all very scary," Phillips, who visited China in November, said in an interview.
Bond vigilantes gained control of the Interest Rate on the US Government Ten Year Note, ^TNX, on December 14, 2012, calling the rate higher from 1.7%, and were successful in causing the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, to steepen, as is seen in the Steepner ETF, STPP, steepening. And currency traders were successful at that time in selling the world major currencies, DBV, specifically the Australian Dollar, FXA, and the Canadian Dollar, FXC, causing competitive currency devaluation which caused a topping out of World Stocks, VT, on December 20, 2012.
The world central banks' monetary authority is exhausting and is no longer able to provide stimulus to global growth and corporate profit. Out of soon coming credit, and currency crises, regional governors and regional finance ministers, will be rising to authoritarian power through regional framework agreements to provide regional security, stability, and sustainable economic activity through public private partnerships, as leaders from commerce and industry work with government officials to manage regional economies.
Mike Mish Shedlock communicates that Liberalism has created a Make Believe World. Inasmuch as the world is passing through Peak Credit, Peak Currency, Peak Wealth, and Peak Seigniorage, humanity is experiencing a paradigm shift out of Liberalism and into Authoritarianism.
Full monetary easing has brought moral hazard to the forefront of economic reality. The debts of Liberalism, that is Total Bonds, BND, which is also called Aggregate Credit, AGG, are so massive and so toxic that they cannot be repaid. The debts of Liberalism will be applied to every man, woman and child on planet earth, beginning first in the Eurozone, as out of political and economic chaos, the Beast Regime of Totalitarian Collectivism and Regionalism, rises from the profligacy of the Mediterranean Nation Countries, that is the PIGS, Portugal, Italy, Greece and Spain.
Milton Friedman's Free To Choose Floating Currency Regime, which created credit based prosperity, provided the now dying fiat money system. In its place the Mario Draghi Regionalism and Diktat Regime, and its diktat money system, are rising to provide austerity and debt servitude for all. In the diktat money system, diktat serves as currency, credit and wealth.
3) … In the News
Bespoke Investment Group relates Bullish sentiment rises to highest levels since February.
Bloomberg asks Are We Facing a Decade of Financial Repression? Bloomberg
AP reports Obama demands action on gun control. Days after the horror in Newtown, the president creates a task force to reduce gun violence.
Ansuya Harjani of CNBC asks Are India stocks out of whack? I relate that it has been India Bank, IBN, that has been taking India Stocks, INXX, INP, SCIN, higher, as is seen in their ongoing Yahoo Finance chart.
Reuters reports Fiscal cliff talks turn sour, Obama threatens veto.
Social Europe reports The Eurozone's delayed reckoning.
Reuters reports Peak farmland is here, food crop area to fall, study reveals.
Reuters reports Intercontinental Exchange in talks to buy NYSE. Shares of ICE rose slightly and shares of NYX rose slightly.
LA Times reports Treasury to sell GM stake over 15 months. More than four years after the U.S. began pouring money into ailing banks and automakers, the Obama administration is moving more quickly to shut down the controversial $700-billion bailout fund; GM, rose strongly taking Automobiles, CARZ, higher.
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