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They Will Not Ring A Bell At The Top

Financial Market report for April 29, 2011

World stocks, ACWI,  are likely topping out on the likely exhaustion of quantitative easing ad likely completion of a currency rally. The world is reaching the End Point of Neoliberalism as seigniorage of the US Federal Reserve and World Central Banks is starting to fail as inflation takes its toll in the BRICS, and China responds with the start feudal economic governance, state corporatism and price controls. A fall in gold, to 1,380 could easily occur as the commodity currencies turn lower.

Doug Noland reports For the week, the S&P500, SPY, jumped 2.0% (up 8.4% y-t-d), and the Dow, DIA,  rose 2.4% (up 10.7%).  The broad market remains strong.  The S&P 400 Mid-Caps gained 2.0% (up 11.9%), and the small cap Russell 2000, IWM, rose 2.3% (up 10.4%).  The Banks rallied 2.1% (down 1.3%), and the Broker Dealers added 0.1% (flat).  The German DAX equities index jumped 2.9% (up 8.7% y-t-d).  South Korea's Kospi index slipped 0.2% (up 6.9%). the Morgan Stanley Cyclicals, $CYC, gained 2.2% (up 8.5%), and the Transports, IYT,  surged 4.2% (up 8.0%).

Lisa Abramowicz and Tim Catts of Bloomberg report:  “Companies are staging debuts in the junk-bond market at the fastest pace since 1998, taking advantage of borrowing costs at record lows for everything from building solar-power plants to paying dividends to shareholders.  ADS Tactical joined 512 other companies in selling high-yield, high-risk bonds for the first time in the 12 months ended in March … Debut issuers have helped drive the value of the speculative-grade market to more than $1 trillion from $850.4 billion a year ago. Junk bond sales of $112.6 billion this year compare with $95.3 billion in the same period of 2010, when issuance set a record of $287.6 billion for the full year. Yields plummeted to a record low 7.27% on April 21 from 8.27% a year earlier and 17.1% two years ago.  Chart of Junk Bonds, JNK.

The zenith of Neoliberalism is seen not only in the expansion of junk debt, but also in the rally in ATM provider Cardtronics, CATM.

Tim Catts of Bloomberg:  “Corporate bond sales worldwide fell 38% in April from last month as the world’s largest economy decelerated, curbing demand for funds to fuel expansion.  Deutsche Bank led $242.7 billion of company debt offerings globally this month, the least this year, and 3% less than in April 2010. Sales in the U.S. plummeted 41% from last month.”  International Corporate Bonds, PICB

US Corporate Bonds, LQD

The U.S. dollar index, $USD, fell 1.5% to 73.0 (down 7.6% y-t-d).  

Rising this week were, the Russian Ruble, XRU, 3.2%, the Swiss Franc, FXF,  2.3%,  the South African Rand, SZR, 2.3%, the Norwegian Krone 2.25T,  the Australian Dollar, FXA, 2.2%, the Euro, FXE, 1.7%,  to close at 147.5, the Danish Krone 1.7%, the British Pound, FXB, 1.2%, the Emerging Market Currencies, CEW, 1.1%, the Swedish Krona, FXS, 1.1%, the Taiwanese Dollar 1.0%, the New Zealand Dollar, BNZ, 1.0%, the Canadian Dollar, FXC, 1.0%, the Mexican Peso, FXM 1.0%, the South Korean Won 0.7%, the Singapore Dollar 0.8%. the Indian Rupe, ICN, 0.4%, the Developed Market Currencies, DBV, 0.4%, the Commodity Currencies, CCX, 1.4% as can be seen in this Finviz Screener.

The exhaustion of the seigniorage of neoliberalism is seen in the chart of the HUI Precious Metal Mining Stocks Relative To US Treasuries, GDX:EDV,

And the exhaustion of the seigniorage of neoliberalism is also seen in the chart of World Stocks relative to World Government Bonds, VT:BWX,  

A rally high has likely been achieved in gold, GLD. yet future highs in gold are definitely assured with the collapse of Neoliberalism.

Inflation Destruction will fuel the development of Asia regional economic governance in accordance with the call of the Club of Rome in 1974 for ten regions of global government. Shamim Adam of Bloomberg reports:  “Asia faces a ‘serious setback’ from surging oil and food prices that are fueling inflation and threatening to push millions into extreme poverty, the Asian Development Bank said.  The region’s growth may be reduced by as much as 1.5 percentage points should the pace of gains in oil and food prices seen so far this year persist for the rest of 2011.  

Domestic food inflation in many Asian economies has averaged 10% this year, an increase in prices that may push an additional 64 million people into extreme poverty.  Policy makers from China to India and Singapore are stepping up the fight against inflation through interest rate increases or currency appreciation as political unrest in the Middle East boosts crude oil prices. The pattern of ‘higher and more volatile’ food prices is also likely to continue in the short term amid declining grain stocks, the ADB said.”

Doug Noland writes in article Henry Simons was Right:  The establishment of definite, stable, legislative rules of the game as to money, or in other words, the creation of a national monetary system, are of paramount importance to the survival of a system based on freedom of enterprise.  Henry Simons, 1936.

“When questioned on inflation, the Fed Chairman repeatedly referred to “well-anchored inflation expectations.”  Gold jumped $21 Wednesday to surpass $1,525.   Watching the markets bid up the prices for gold, silver, crude and commodities, one is hard-pressed to dismiss the notion that inflationary forces are nowadays especially untethered.  The press conference also did little to dismiss the notion that a weak dollar is an important facet of Dr. Bernanke’s reflationary policy making.  It is simply not credible to claim that inflation is contained, while faith and the price of our currency decline on an almost daily basis.

The markets were quite satisfied by the event.  The Fed Chairman conveyed that the Fed is in no hurry to remove extraordinary monetary accommodation.  He went so far as to state that any rundown of the Fed’s balance sheet (specifically from not reinvesting maturing securities) would “constitute a policy tightening.”  This suggested that, after the conclusion of Q2, the Fed plans on strictly maintaining the current size of its holdings.  And when “extended period” is eventually dropped from the Fed's statement, there will be at least a couple meetings before “tightening” commences – and this so-called tightening might begin with a period of slow rundown in the Fed’s balance sheet.  Bernanke made it clear that the Fed will err on the side of caution all the way through this process.  Especially considering underlying structural deficiencies and fragilities, the markets are content to presume that true “tightening” – returning rates to a more normalized level – is likely years away.

Returning to “rules vs. discretion,” Dr. Bernanke’s highly-discretionary policy has been communicated to the markets with great transparency.  Never mind the fact that signaling an extended period of aggressive monetary accommodation directly to a highly speculative marketplace was instrumental in fueling past Bubbles.

We’re in need of some rules.  We need rules that would ensure that the Fed never again accommodates a doubling of mortgage Credit in about six years.  We need rules that ensure that the Fed is not complicit in double-digit-to-GDP federal deficits – and a doubling of federal debt in less than four years.  We need some rules that ensure that savers don’t receive a pittance on their savings while speculators enjoy a historic windfall.

We need rules to ensure that the Fed judiciously monitors financial conditions from a broad perspective.  We need rules that would impose discipline when our economy runs persistently large Current Account and fiscal deficits.  

We need rules to ensure that emergency monetary policy measures have defined durations – helping to limit the structural impact from artificially low interest rates.  We need to have rules to ensure that intervening in the marketplace is not commonplace.  We need rules to ensure that the Fed doesn’t use the manipulation of financial markets as a mechanism to bolster the economy.  We need rules to ensure a policy focus on underlying Credit conditions rather than asset prices.  We need rules to ensure monetary policy does not nurture speculative excess.  These rules would incentivize the speculators to bet on the system gravitating toward stability – as opposed to these days where the sophisticated speculating community wagers confidently that excess will beget only greater excess.

We need rules to ensure that Federal Reserve policy making does not dictate the (re)distribution of wealth throughout our society.  We need rules that would ensure that the public and financial markets do not expect too much from monetary policy.  We need rules that would forbid the Fed from monetizing debt, ballooning its holdings, and massively inflating system liquidity – at its discretion.  Rules are needed to ensure that monetary policy doesn’t dictate decision-making throughout the entire economy.

And we so need a framework of rules that would work toward ensuring that the stability of our monetary system is beyond repute – that society need not fear that policymakers will devalue their savings or jeopardize the Creditworthiness of our nation’s obligations and financial system.  And we need rules to ensure that the ideology of a single appointed central banker cannot have a profound impact on the nature of monetary policy, asset prices, debt structures, speculative dynamics, financial flows and resource allocation.  The risks of indiscretion are much too great, and Henry Simons was absolutely right.

I relate that when the seigniorage of neoliberalism totally fails, through a soon coming Götterdämmerung, that is an investment flameout, coming via a liquidity crisis of no dollars, or through the failure of US and European Treasury auctions, seen in the collapse of world government bonds, BWX, and US Treasury Bonds, EDV, TLT, IEF, and IEI, as well as mortgage backed bonds, MBB, distressed securities, such as those in the mutual fund, FAGIX, and Junk Bonds, JNK, then a Chancellor, the Sovereign, and a Banker, the Seignior, will arise from a Europe German federal union, to establish a new seigniorage, that is a new moneyness, whereby they dictate the rules of the game as to money with the creation of a global monetary system providing world wide economic governance and austerity for all. Perhaps the Seignior, who will establish order out of chaos will be the Italian banker and former Goldman Sachs executive Mario Draghi, the individual featured in Jack Ewing NY Times article German Paper Finds Draghi Not So Bad After All. The rule and reign of the Sovereign and the Seignior will see government leaders waive national sovereignty by announcing Peace And Prosperity Framework Agreements which establish the ten regions of global governance called for by the Club of Rome in 1974.
Joe Wiesenthal of Business Insider writes One Brutal Chart That Confirms The Failure Of QE2

Ben Bernanke’s Quantitative Easing 2 has inflated the price of gold, GLD, and deflated the price of US Treasuries, TLT, as is seen in the chart of the Flattner ETF, FLAT, GLD, and TLT

ETFs rising strongly during April 2011 included 
Real Estate, IYR, 4.6%
Utilities, XLU, 4.1
Health Care Provider, IHF,  5.2  
Small Cap Health Care, PSCH, 7.9
Small Cap Consumer Discretionary, PSCD, 3.9
Internet Retail, HHH, 8.5
Small Cap Industrial, PSCI, -0.1
Small Cap Information Technology, PSCT, 1.9
Biotechnology, XBI, 10.5
Biotechnology, IBB, 7.3
Gold Miners, GDX, 3.5
Junior Gold Miners,, GDXJ, 6.2
Silver Miners, SIL, 0.8
Silver Standard Resources Inc, SSRI,  10.7
Small Cap Pure Growth, RZG, 4.6
Germany Small Caps, GDXJ, 6.2
Australian Small Caps, KROO, 3.4
South Korea Small Caps, SKOR, 2.7
Latin America Small Caps, LATM, 4.3
Brazil Small Caps, BRF, 2.9
India Small Caps, SCIN, 5.2
China Small Caps, HAO, 3.2
World Small Caps, VSS, 5.1
Russia Small Caps, RSXJ, 0.0
Shanghai, CAF, -1.2
Austria, EWO, 2.2
Sweden, EWD, 8.9
Italy, EWI, 8.4
Spain, EWP, 7.8
Russell 2000 Growth, IWO, 3.8
Copper Miners, COPX, 4.9
Aluminum Miners, ALUM, 0.4
Leveraged Buyouts, PSP, 5.9
Metal Manufacturing, XME, 1.7
Turkey, TUR, 10.8
Wood and Paper Producers, WOOD, -1.8