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Bear Market Recommences As Citigroup And Bank Of America Report Lower Revenues


Stocks Fall On Citigroup And Bank Of America Revenues Report

Stephen Bernard of the Associated Press report that Citigroup, C, and Bank of America, BA, joined JPMorgan Chase, JPM, in reporting higher earnings in the second quarter this week as loan losses fell. However, the major banks are also seeing lower trading revenues because of the stock market’s plunge this spring.

The too-big-to-fall bank’s, RWW, disappointing revenues, caused Banks, KBE, European Financials, EUFN, and European shares, FEZ, to fall worse than US shares.

Japanese shares, EWJ, fell hard on a higher Yen, FXY, and on the Thursday July 15, 2010 report of falling growth in China.

Australia, EWA, Asia, DNH, and China, FXI, sold off heavily on the Thursday July 15, 2010 report of falling growth in China.  

BRIC countries, EEB, Brazil, EWZ, and India, INP, sold off only moderately. 

Base metals, DBB, fell taking gold mining shares, GDX, lower. The gold mining stocks disconnected from the price of gold, GLD, as reflected in the mining shares falling more than the commodity price as can be seen in the chart of DBB, GDX, GLD and ZROZ. The longest out, that is the greatest maturity debt and gold mining stocks always make market turns lower together.  Today, Friday, July 16, 2010 marks the end of the age of profitable investing in the HUI precious metal mining stocks, $HUI.

The HUI precious metal mining stocks, like the small cap value mutual funds, such as MPSCX have been the superstars of investing; but now wealth can no longer be garnered by traditional investing: it is to be preserved by investing in gold.  

The Russell 2000 shares, IWM, which are highly sensitive to changes in banking shares, KBE, fell heavily. I’ve been recommending the Direxion 300% inverse of the Russell 2000, TZA, to institutional investors; it rose significantly today. 

Basic material shares, IYM, fell significantly, as did industrials, XLI, as did real estate, IYR.

Bush Era Legislation Continues To Benefit Large US Companies At The Expense Of Small Businesses

The pure value shares, RPV, fell more than the pure growth share, RPG, indicating that debt deflation that commenced April 26, 2010 has recommenced. And when taken together with news that twenty-four multinational corporations have moved their headquarters to Shanghai, means that the we have entered into “the end of corporate investing in America”.

Mike Mish Shedlock reports: “When you have a tax policy that begs corporations to move workers and profits overseas, this is what you should expect: Twenty Four Multinationals Move HQ To Shanghai

24 multinational companies, have decided to move their regional headquarters to Shanghai, including 6 Fortune 500 companies such as Vale, Walt Disney and Kraft Foods.

This will push the total number of companies with regional headquarters in Shanghai to nearly 300. Nearly 500 have regional research and development centers there.

Shanghai has been China’s top destination, for multinationals. Even during the world economic slump, the city’s foreign direct investment still increased. Data shows Shanghai’s foreign direct investment has already surpassed more than 5 billion US dollars in the first half of this year.

US Tax policy allows deferral of taxes on corporate profits held overseas. Tax policy, in conjunction with global wage arbitrage, practically begs corporations to move jobs and profits overseas.” Meanwhile, small businesses struggling in the US face higher taxes and increased medical expenses thanks to the Obama administration. It’s a lose-lose situation for small businesses vs. larger multinationals. The worst part of this sorry situation is small businesses are the real economic driver for jobs.

The Yen Rises As The Euro Yen Carry Trade Falls

Currency traders took the euro, FXE, to $1.293 at opening. But then the bank report came out, and the Euro fell to trade at 1.290. The Yen, FXY, also opened higher and continued higher. The euro yen carry trade, EUR/JPY, fell from over 113 to 111.68 in early morning trading, turning off the spigot of investment liquidity.

The age of competitive currency devaluations commenced in December 2009, as Wikipedia reports the European Sovereign Debt commenced, and the Euro FXE, and the Yen, FXY, began to tumble lower together. Gold, GLD, arose to be the sovereign world currency when its price rose above $1,000 on Apr 1, 2010. The US Dollar, $USD, fell lower on June 7, 2010 as the EFSF monetary authority was formerly chartered in Luxembourg. Gold, $GOLD, is currently trading around $1,180.  Gold is the only investment vehicle that will preserve the individual’s wealth as we have entered into Kondratieff Winter. Chart shows that since April 1, 2010, debt deflation has caused an investment demand for gold: it has risen 5%, whereas the Russell 2000, IWM has fallen 10%, and the European shares, EWP, and Asian shares, DNH, 15% on debt deflation. Wikipedia reports that the European sovereign debt crisis commenced on December 8, 2009 as Fitch Ratings cuts Greece’s rating to BBB+ from A-, with a negative outlook. And then on December 14, 2009, Greek PM Papandreou outlines first round of policies to cut deficit and regain investor trust. However all investment hope was lost on December 16, 2009 as S&P cut Greece’s rating to BBB+ from A- and on December 22, 2009, Moody’s cut Greece’s rating to A2 from A1.

The Highest Quality And Shortest Term US Government Debt Spikes Higher

The sell off in stocks has caused a parabolic rise in the highest quality and shortest term of debt, with corporate bonds, CFT, and the ten-year US Government bonds, IEF,  both marching in three white soldiers fashion. The bullish reversal pattern in CFT and IEF consisting of three consecutive white bodies, each with a higher close, suggests we have reached the end of the age of credit …. click on chart to enlarge.  

The interest rate on the US Ten Year note $TNX fell to 2.94%  which is near the July 1, 2010 low of 2.92%.

The 20 to 30 Year US Treasuries, TLT, rose weakly. The interest rate on the 30 Year US Government Bond, $TYX, fell to 3.94%.

High Yield Corporate Debt, HYV, and High Yield Municipal Debt, HYD, barely rose. Build America Bonds, BAB, closed unchanged.

Aggregate Debt, AGG, popped higher to 107.43, today July 16, 2010, in three white soldiers fashion. The bullish reversal pattern in AGG consisting of three consecutive white bodies, each with a higher close, is another indicator that we have reached the end of the age of credit  …. click on chart to enlarge.

The Direxion 300% inverse of the 30 Year US Treasuries, TMV, fell 1.5% toward its spiked bottom of June 7, 2010 when it closed at 40.0.  Today’s close in the Direxion bear market ETF, TMV, at 41.20 may be as far as this bear market investment falls. TMV’s spiked bottom, plus a rising yield curve since April 26, 2010,  $TYX:$TNX, which jumped this week ending July 16, 2010 to 1.34, definitely suggests that “the age of the end of credit” has commenced ….. click on chart to enlarge.

The Rise Of The Euro And The Fall Of The European Financials Today Suggests A Liquidity Evaporation

Nic Lenoir writes in ZeroHedge: ”Earlier, we pointed out that Euribor is surging, despite continuing verbal assault by European bureaucrats that all is well, indicating that the European overnight funding market is structurally broken even as the ECB has become lender of first, last and every resort. The problem, however, is that when it comes to currency liability mismatches, nobody, not even all the central banks in the world, have enough capital to satisfy demand. Which is what seems to be happening with the EUR right now, as the EURUSD surges each day by an unprecedented 100 pips (will someone please advise when in history has the pair been ever so volatile?). Nic Lenoir explains …. It’s a Euro funding squeeze. This should not be interpreted as a traditional EURUSD rally in tandem with equity strength. In fact this currency move is a sign of distress in the system and a reminder that any withdrawal of liquidity triggers a squeeze, in the US like in Europe, because the interbank cash market is still inexistant and if the central banks abandon their role of individual lender to each entity there is no cash circulation to make up for it.”

The Wall Street Journal reports Overnight Rate May Hit 1% As Excess Liquidity Dwindles; and the WSJ also reports: Three-Month Euribor Rises After ECB Loan Expiry:  the EU banks’ muted demand for short-term loans is what has been zooming up the euro.

The implication here is a fast fall in the European Financials, EUFN, and in Spain, EWP compared to the overall European Shares, FEZ.

And it is as Pater Tenebrarum writes A Global Liquidity Squeeze Looms

Treasury International Credit Report Suggests That The Federal Reserve Is Conducting A Shadow US Sovereign Debt Monetization Program Out Of London

Tyler Durden relates: “We read that in May 2010, China dumped $33 billion in Treasuries, bringing its total to the lowest since June 2009. Furthermore, Japan also offloaded $8.8 billion in bonds, as did the Oil Exporters. Yet total foreign Treasury holdings increased from $3,957 billion to $3,964 billion almost exclusively as a result of ongoing exponential UK accumulation. It is time someone in the mainstream media asked just who is doing all this “UK-based” buying? It is not hedge funds, which operate out of Caribbean Banking Centers, and which saw an increase in holdings from $151.8 billion to $165.5 billion as risk went completely off in the month of May courtesy of the Flash Crash, Greece, and the general insolvency of Europe. It is also not China due to a diverging pattern in Bills accumulation versus disposition.  This is not hedge fund accumulation, as Caribbean Banking Centers, traditionally the locus of HF accumulation saw a $14 billion increase in May, and if it is China, as is widely rumored, why was there an increase in Bill holdings? This is increasingly appearing as shadow Fed debt monetization operation, operating out of the United Kingdom.

theyenguys’ ticker list shows: FEZ,- 3.1%, EWP -3.2%, EWA -3.2%, DNH -3.1%, FXI -3.0,  EWJ -2.5%, EEB -2.4%, EWZ -3.0%, INP -1.7%, GDX -3.3%, IWM -3.6%, XLI -3.3%, IYR -3.1%, IYM -3.3%, RPV -3.9%, RPG -3.4%, TZA +10.8%, TMV -1.5% , IEF +0.6%, FXE -0.07%, FXY  +0.89%

Disclosure: I am invested in gold coins