Archive for April, 2011

They Will Not Ring A Bell At The Top

April 30, 2011

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.

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 wil 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
   

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 in the past month, maxing out include:
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

Keywords
Mario Draghi, The Seignior, The Sovereign, Seigniorage, Market Top, Peak Wealth, Peak Credit,  Quantitative Easing Exhaustion, Neoliberalism, Chinese Feudal Economic Governance, Exhaustion of Quantitative Easing, Failure of Seigniorage, Morgan Stanley Cyclicals Index, Inflation Destruction, Asia regional economic governance, GLD, UUP, FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, XRU, BNZ, DBV, CEW, CCX, EDV, TLT, FLAT, DIA, SPY, IWM, EWG, IYT, JNK, CATM, PICB, LQD, VT, GLD, ACWI

BRICS Fall Lower On Inflation Destruction in India and Introduction of Chinese Feudal Economic Governance

April 28, 2011

Financial Market Report for April 28, 2011 (All news items courtesy of Between The Hedges)

Bloomberg reports Yields Surge as Local Spending Boosts Inflation: India Credit. Spending by local governments before elections is stoking India’s inflation, which as driven yields on the nation’s benchmark bonds to their biggest monthly surge in more than a year. Gross state borrowings rose 39% in the year ended March, ever seen an 8% drop in the previous 12 months. India’s central bank warned last month that lax fiscal discipline threatens efforts to contain inflation. “Policy akers’ efforts in fighting inflation are being offset by populist measures,” S.C. Kalia, executive director of Union Bank of India in Mumbai, which buys regional government bonds, said in a phone interview on April 26. “States have to exercise fiscal discipline” to avoid a situation where “the panic button on inflation has to be pressed,” he said.

Financial Times reports Brazil’s inflation influenza

Bloomberg reports China Property Slowdown Poses Growth Risks, World Bank Says. China’s real-estate market is a “particular source of risk” to growth given the importance of property construction to the world’s second-biggest economy, the World Bank said today. “Shocks to the property sector that would slow down construction significantly could have a large impact on the economy and on bank balance sheets,” the Washington-based lender said in its China Quarterly Update released in Beijing. “A property downturn could affect the finances of local governments, which do a lot of the infrastructure investment.” Regulators told China’s banks last week to conduct more stress tests on their real-estate lending as the government steps up efforts to curb surging housing prices. A potential rise in bad debts on property loans and credit to local government financing vehicles risks triggering another state- funded bailout, Fitch Ratings said this month. “With tension between the underlying upward housing price pressure and the policy objective to contain price rises, interaction between the market and policy measures could lead to a more abrupt than planned downturn in the real-estate market,” the World Bank said in its report. High property prices should be controlled through “macroeconomic levers” rather than administrative measures, the bank said.

Economic Observer China’s top economic planning agency has arranged to meet with several large domestic coal producers this morning at which the government will ask the companies to “appropriately” control price increases, citing a person familiar with the situation.

Reuters reports Biggest Changes in NYSE Short Interest. Short interest on the New York Stock Exchange rose 3.4 percent in early April compared with the last half of March, according to information released by the exchange this week.

Currencies trading up today included
South Africa Rand, SZR .57
Australian Dollar, FXA ,57
Swedish Krona, FXS .52
Russian Ruble, XRU. 45
The Euro, FXE .16
Emerging Market Currencies, CEW .13
Swiss Frac, FXF .09

The US Dollar $USD, fell 0.55% to 73.12 and UUP fell 0.29 to 20.96

Junk Bonds, JNK, rose to 40.81. Leveraged Buyouts, PSP, rose to 12.22

Clear a stock market top is being made, in the world stocks, VT, and ACWI. Asia stocks fell lower on inflation destruction and the rising of feudal Chinese state corporatism in the form of price controls on coal mining companies. Inflation turning stocks lower is a symptom, that is a sign of exhaustion of quantitative easing. The seigniorage, that is the moneyness of Neoliberalism, is failing. A global chancellor, that is a Sovereign, and a global banker, that is a Seignior, will arise to provide new moneyness.  
EEB -1.2, INDY -0.9, SCIN -1.7, EWZ  -1.4, BRF -2.7, YAO -1.2, HAO -1.2, CAF -1.9, THD -0.7, CHIE, -1.2, CHIX, -1.1, CHIM, -1.0, SKOR, -1.0

ETFs rising today
IYR 1.1%, IYT 1.1%, IHF 1.6%, KIE 2.0%, XLU, 0.9,

Stocks of interest
YZC

NLY

India Bank, HDFC Bank, HDB

Brazil Financials, BRAF

Silver Miners ETF, SIL,

EFN

Gold Miners GDX

x

China Implements Price Controls On Coal Mining Companies Sending BRIC Stocks Lower

April 27, 2011

Financial Market Report for April 27, 2011

1) …  ETFs falling lower today
Chian, YAO
China Small Caps HAO
China Minerals, CHIM
China Financials, CHIX
China Energy, CHIE
China Tech, CQQQ
China Real Estate TAO
Shanghai CAF
India INDY
Emerging Markets EEM
Brics EEB
Brazil EWZ
Russia RSX
Turkey TUR
Coal KOL
Small Cap Energy PSCE

2) … Commodities falling lower today included
DBB, JJA, CUT, USCI, DJP, JJC

3) …  Stocks of interest
Real Estate: Industrial REIT: First Industrial Realty Trust, FR

The Morgan Stanley Cyclical Index: Basic Material Component: Freeport McMoRan Copper & Gold, FCX

Annaly Capital Management, NLY

Yanzouh Coal Mining, YZC,

Chart of World Stocks, ACWI, VT, appears topped out

Junk Bond, JNK,

The chart of Seigniorage, World Stocks relative to World Government Bonds, VT:BWX, communicates the exhaustion of quantitative easing and the failure of seigniorage of the world’s central banks.

4) News and Editorials courtesy of Between The Hedges.

Wall Street Journal Medicare As We’ve Known It Isn’t An Option. Paul Ryan’s premium support plan is preferable to Obama’s rationing panel. My opinion is that a global financial collapse will require appointment of medical oversight payment czars for both Medicaid and Medicare.

Economic Observer China’s top economic planning agency has arranged to meet with several large domestic coal producers this morning at which the government will ask the companies to “appropriately” control price increases, citing a person familiar with the situation.

I believe that it is best to sell out of silver bullion, SLV, and buy gold bullion, GLD.

Keywords: Neoliberalism, Failure of seigniorage, Seigniorage, Exhaustion of Quantitative Easing, Quantitative Easing Exhaustion, Inflation Destruction, China Price Controls, State Corporatism, Chinese Economic Governance

YAO, HAO, CHIM, CHIX, CHIE, CQQQ, TAO, CAF, INDY, EEM, EEB, EWZ, RSX, TUR,
KOL, BB, JJA, CUT, USCI, DJP, JJC, FR, VT, ACWI, JNK, SLV, GLD, BWX, YZC, NLY, FCX, PSCE

Stocks Rise To New High As Fed Signals It Is In No Hurry To End Quantitative Easing 2

April 26, 2011

Financial Market Report For April 26, 2011

Stocks soared to new highs as the Federal Reserve kicked off a two-day meeting on Tuesday that will probably show that it is in no hurry to scale back purchases of Treasuries.

Stocks rising today included
Water, FIW 2.3
Small Cap Industrial, PSCI 2.2
Semiconductor, XSD 2.0
Transportation, IYT 1.9
Wood And Paper Production, WOOD 1.8
Small Cap Health, PSCH 1.7
Industrial, IYJ 1.7
Small Cap Value, RZV 1.5
Small Cap Technology, PSCT 1.5
Biotechnology, IBB 1.5
Apple Phone Ecosystem, FONE 1.5
Enviornmental, EVX 1.5
Small Cap Growth, RZG 1.4
Telecommunications, VOX 1.4
Small Cap Revenue, RWJ 1.4
Regional Banks, KRE 1.3
Biotechnology, XBI 1.2
Small Cap Consumer Discretionary, PSCD 1.2

Utilities, XLU rose 0.8, on falling interest rates, $TNX, and a rising Euro, FXE.

Morgan Stanley Cyclical Index, $CYC, 1.4
S&P, SPY, 0.8
Dow, DIA, 0.9
Russell 2000 Growth, IWO, 0.7
Morningstar Mid Growth, JHK, 0.4

Currencies rising strongly today included
New Zealand Dollar, BNZ, causing New Zealand, ENZL, to rise
South African Rand, SZR, causing South Africa, EZA, to rise
New Zealand Dollar, FXA, causing the Australian Small Caps, KROO, and Australia, EWA, to rise
Swiss Franc, FXF, causing Switzerland, EWL, to rise
Mexico Peso, FXM, causing  Mexico, EWW, to rise  
The Euro, FXE, causing Europe, VGK, to rise.

The Seigniorage Of Neoliberalism Fails Once Again as Shanghai, And Mining Shares Trade Lower

April 25, 2011

Financial Market Report for April 25, 2011

Inflation destruction and the exhaustion of the quantitative easing turned world stocks, ACWI, and the world small cap stocks, VSS, lower today.

Inflation destruction is seen in the Wall Street Journal report Truckers idle rigs in Shanghai and the Bloomberg report that China Stocks Drop to 3-Week Low as Rising Oil Prices Boost Inflation Risk. China’s stocks fell, driving the benchmark index to the lowest level in three weeks, as higher oil prices boosted concerns inflation will accelerate and spur more policy tightening measures.   

ETFs trading lower included
Shanghai Shares, CAF, -2.1
Silver Miners, SIL, -3.1
Gold Miners, GDX -2.2
Junior Gold Miners GDXJ, -3.1
Peru, EPU, -1.7
Coal, KOL, -1.5
Thailand, THD, -1.3

Middle East , MES, -1.0
China Small Cap, HAO -1.0
Timber Producers, WOOD, -1.0
Apple Ecosystem, FONE, -1.0
India Small Caps, SCIN, -1.0
China Small Caps, HAO, -1.0
India, INDY, -1.0
Latin America, LATM, -1.0

Stocks trading lower included
Real Estate: Property Management: CB Richard Ellis, CBG, -3.8
Textiles: Unifi. UFI, -1.8
Agriculture, Monsanto, MON, -2.3
The Morgan Stanley Cyclicals Index: Paper: International Paper, IP, -1.5
Semiconductors: DRAM Chips: Micron Technology, MU, -1.7
Taiwan Semiconductors, TSM, -2.2
Zip Car, ZIP, -3.4

Base Metals, DBB, and Timber, CUT, traded lower included

The failure of seigniorage is seen in the World Stocks relative to World Government Bonds, turning lower, VT:BWX

And the failure of seigniorage is seen in the the HUI Precious Metal Mining Stocks Relative To US Treasuries turning flower GDX:EDV.

In today’s news on the war of terror

Bloomberg reports Taliban Helps 500 Prisoners Break Out of Afghanistan Jail. Taliban guerrillas tunneled into the main jail in Kandahar, the southern Afghan city at the center of their fight with U.S. forces, releasing about 500 prisoners including insurgent commanders.

Keywords,
Neoliberalism, Failure of seigniorage, Seigniorage, Exhaustion of Quantitative Easing, Quantitative Easing Exhaustion, Inflation Destruction,

The Boom In Federal Finance … Bubbles Annaly Capital Management To A New All Time High

April 23, 2011

Bubblenomics Market Report for the week ending Thursday April 19, 2011

I …   The boom in securitization of US Government Debt investments, bubbled Annaly Capital Management to a new all time high

NLY

GSUAX

MBB

II … Doug Noland writes S&P Commences the Process

I. The good news from Standard and Poor’s was that the company reaffirmed the United States’ “AAA” sovereign debt rating.  The bad news was that its outlook was revised to “negative.”

From Standard and Poor’s:  “We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”  U.S. bond prices actually moved up on the news (in the face of Monday’s weak stock market), and yields ended lower for the week.  It’s true that the markets were not caught unaware of our nation’s fiscal woes.  And similar to other potentially negative fundamental developments, markets participants are these days content to play the here and now – and leave structural issues for some later date. From my perspective, S&P’s summary point for why the U.S. retains its top rating provided the most contestable aspect of their report:  “The economy of the U.S. is flexible and highly diversified, the country’s effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.”

Clearly, our “flexible and highly diversified” economy was unsuccessful in thwarting a crisis of confidence for much of our private sector debt – a debacle that nearly led to the collapse of our Credit system, stock market and economy back in 2008.  And having witnessed our monetary policy propagate a 20-year cycle of booms and busts, I’ll stick to the view that the Federal Reserve is more of a liability than an asset when it comes to prospective debt quality.  Loose monetary policy from the Fed accommodated the greatest expansion in mortgage debt in history – and now zero rates and monetization are well on their way to supporting a historic boom in government debt.  And, of course, a decade of dollar weakness raises the question as to the true underlying “global preference” for our currency.

There’s going to be one hell of fight in Washington over the details of deficit reduction.  With too many eyes on 2012 elections, it’s sure to be a challenging environment – to say the least – to muster bi-partisan compromise.  Prospects for any serious near-term spending cuts are slim to none – and the markets are more than fine with this.  The marketplace believes it has at least a couple additional years before the debt situation turns problematic (hence, market-impactful).  In the meantime, participants are confident that the odds of big – and destabilizing – spending cuts prior to 2013 are slim.  This is all in the market.

II. During the heart of mortgage finance Bubble (2001 through 2007), Total Mortgage Debt expanded about $7.8 TN, or 115%.  Mortgage excesses evolved to dominate the workings of the Credit system, becoming the majority of total system Non-Financial Debt growth.  This source of finance provided crucial inflationary fuel for home prices, equity extraction, household Net Worth, incomes, corporate earnings/cash flows, government receipts/expenditures, imports and global financial flows.  Over time, these flows – and resulting inflationary effects – became deeply embedded in asset prices, incomes, and system-wide expenditures.  During each passing year of mortgage excess, myriad distortions more deeply affected the underlying economic structure.  And every year the increasingly maladjusted “Bubble Economy” ensured both a more intense addiction to excess – and a more problematic process of weaning away from mortgage Credit.  These dynamics, to this day unappreciated by analysts and policymakers, are so crucial for understanding what got us to where we are and for appreciating that we’re repeating a similar process with federal Credit.

Policymakers, the rating agencies and, apparently, the marketplace never recognized how (“Ponzi finance”) Bubble dynamics were distorting price structures throughout the economy.  The Credit system doubled mortgage debt and the markets pretended the quality actually improved (the price of mortgage debt increased!).  Amazing as it is to contemplate, it seems that virtually no one appreciated the degree of distortions and underlying fragility.  In hindsight, it should now be clear that the mortgage finance boom inflated home prices to unsustainable levels.  As important, this atypical expansion of finance inflated incomes and government tax receipts, while distorting the pattern of spending and investment (good old fashioned “Austrian” analysis).

I would argue that today’s atypical expansion in federal finance is having crucial, yet less obvious, impacts on incomes, asset prices and expenditures.  Ebullient markets are confident in the slow but ongoing healing process thesis (slow is good, ensuring protracted ultra-easy monetary policy).  In reality, fragilities quietly and methodically continue to mount.  The system is in desperate need of balance and restraint – but is receiving the opposite.

From S&P’s report:  “In our baseline macroeconomic scenario of near 3% annual real growth, we expect the general government deficit to decline gradually but remain slightly higher than 6% of GDP in 2013. As a result, net general government debt would reach 84% of GDP by 2013.” It is worth highlighting that some forecasts for Q1 growth have dropped to as low as 1.5%, a dismal showing considering unrelenting extreme fiscal and monetary stimulus (and resulting stock market gains).  Not surprisingly, the boom in federal finance is having a more muted economic impact when compared to that from previous mortgage excess.  The mortgage Bubble inflated the perceived Net Worth of most homeowners, while inciting huge booms in construction and consumption.  Today’s boom has certainly been instrumental in stabilizing incomes (at an inflated level), although asset price gains are benefiting a narrower cross-section of the general population.  Meanwhile, a large portion of the populace is today suffering from meager (negative real) returns on their savings – while losing out to rising inflation.

III.  I’m confident that S&P’s baseline case is too optimistic. “Austerity” at the state and local level – and perhaps even a little from Washington – are poised to restrain an unbalanced recovery.  While no one wants to admit as much, U.S. and global economies are increasingly susceptible to highly speculative and unstable global risk markets.

And with U.S. private-sector Credit growth remaining almost non-existent, I believe S&P’s and others’ estimates for the growth in federal receipts will prove overly optimistic (“output” financed by federal government borrowing and spending will not resolve fiscal troubles).  The odds of a recession over the next few years are not low.  And I would argue strongly that the longer the government finance bubble runs the more difficult the adjustment when this vital source of finance is scaled back.  At the end of the day, massive expansions of a particular strain of Credit – albeit mortgage, household, corporate, or government – are destabilizing and difficult to normalize from.

IV. And I refuse to take seriously recent intentions to begin addressing this problem until I hear leadership – from the Halls of Congress, from the Oval Office and from both parties – commit to sticking with spending restraint even in the face of recessionary conditions (weak economy and/or markets).  This is where the rubber will meet the road.  We’re now two years into both an economic recovery and one heck of a market boom, so politicians will talk tough and extrapolate a favorable backdrop.  Yet, it wasn’t many months ago that both parties were too willing to go with another round of borrowing and spending stimulus.  I fear both parties will have a very difficult time parting ways with the notion of government as economic/market backstop.  I’m not sure the public is really ready to part ways.

V. Greece’s two-year borrowing costs surpassed 23% yesterday.  They were around 2% in November 2009, back when markets were more tolerant of sovereign borrowing transgressions.  And, yes, I know we’re not Greece.  And I’m not suggesting that Treasury borrowing costs are heading to 20%.  But just as mortgage risk – as well as sovereign risk for Greece, Portugal, Ireland, and Spain – was mispriced throughout the Bubble period, I expect that there will be re-pricing of Treasury (and related) risk in the future.   An over-liquefied marketplace today under-prices Credit, inflation and liquidity risk, in the process accommodating incredible double-digit to GDP deficits.  My base-line case has Treasury borrowing costs at some point unsettling Standard & Poor’s, the Congressional Budget Office and the markets.

The government finance Bubble is the second – and concluding – systemic Bubble.  It’s bigger in dimensions than the mortgage Bubble and is having more problematic systemic effects on incomes and the financial markets.  In particular, acute vulnerabilities resulting from the previous Bubble period now ensure that, in particular, the municipal debt and mortgage markets remain susceptible to any retrenchment in federal spending (or rise in market yields).  And, importantly, there is no potential Creditworthy debt issuer of last resort waiting in the wings to bail out the system when market confidence in U.S. government debt falters.   Ironically, the bigger the Bubbles get the less conspicuous they appear to most.

S&P puts the odds of a U.S. debt downgrade in the next two years at 33%.  Secretary Geithner says it’s zero.  I’ll put the probability of a downgrade in the next few years at close to 100%.  Until proven otherwise, I’m going to presume that policymakers will at some point come to the recognition that the economy and markets are vulnerable.  They will choose to hold off on the difficult decisions – that is, until the markets force their hands.

III  … World currency traders sold the US Dollar, $USD, against the major world currencies, DBV, commodity currencies, CCX, and emerging market currencies,  CEW,  this week , causing world government bonds, BWX, and International Corporate Bonds, PICB, to rise to all time new highs. The US Dollar, traded by UUP, closed just  above 74. The U.S. dollar index fell  0.9% to 74.11).  On the upside for the week,
FXA, the Australian dollar increased 1.6%,
FXY, the Japanese yen 1.5%,
SZR, the South African ran 1.4%,
FXS, the Swedish krona 1.2%,
FXB,  the British pound 1.2%,
the South Korean won 0.8%,
the Danish krone 0.8%,
FXE, the Euro 0.8%,
FXF, the Swiss franc 0.7%,
the Singapore dollar 0.7%,
BZF, the Brazilian real 0.6%,
the Taiwanese dollar 0.4%,  and
BNZ,  the New Zealand dollar 0.3%.  

IV … Charts of the week

VSS

IWO

JKH

Keywords
Mortgage Finance Bubble,Bubble Economy, Government Finance Bubble, Dollar Liquidity Bubble, Bubble Period, Bubblenomics,

Symbols,
NLY, MBB, IWO, JHK,  FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB, BZF, XRU, FXY, BNZ, DBV, CEW, CCX, UUP, BWX, PICB,

Stocks Rise As Traders Buy World Currencies, Oil, And Silver And Sell The US Dollar

April 20, 2011

Financial Market report for April 20, 2011

1) A likely world stock market top has been achieved as traders purchased the worlds currencies, DBV, emerging market currencies, CEW, as well as oil and silver, and sold the US Dollar, $USD, causing World stocks, ACWI to rise 1.7%.

World small caps, VSS, rose 2.1% Emerging market small caps, EWX, rose 1.7%.

The Euro, FXE, rose 1.3% to close at 144.57. CNN Money reports Dollar hits 15-month low against euro

All, that is every one of the world’s currencies rose: FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR FXF, CYB, BZF, XRU, FXY,B NZ, DBV, CEW, CCX; these can be seen in this Finviz Screener
West Texas Intermediate Crude, $WTIC, 1.5% rose to 109.95 and Silver, SLV, rose 2.6% to  44.12.

The US Dollar, $USD, fell 74.37.

The ETFs and stocks rising the most today, especially the developed market small caps are likely to fall the  most as seigniorage continues to fail; the chart of the world stocks relative to world government bonds, VT:BWX, communicates that world the seigniorage of the world central banks failed February 22, 2011.

Failure of the seigniorage of neoliberalism is also seen in the ratio of the HUI Precious Metal Mining Stocks Relative To US Treasuries,.$HUI:$USB, as investors are no longer willing to invest in the precious metal  mining stocks, GDX; but rather gold and silver bullion.

Gold mining stocks have fallen lower in value and have disconnected from the price of gold as is seen in the chart of GDX:GLD

2) … Are you looking for a list of stocks to possibly sell short?  
Personally I am invested in gold and silver bullion, but, if you are looking for a listing of possible stocks to short sell, I suggest my chartlist The Seigniorage Of Neoliberalism Has Failed …. A Bear Market Is Underway http://tinyurl.com/3o2fs6s

3) .. Stock ETFs rising today included
Semiconductors, XSD, 4.0
Copper Miners, COPX, 3.0
Nasdaq 100, QTEC, 3.2
SmartFone, FONE, 3.0
North American Software, IGV, 2.8
Small Cap Technology, PSCT, 2.9
Networking, IGN, 2.8
Solar, KWT, 2.5
Internet Retail, HHH, 2.5
Technology, XLK, 2.1
Junior Gold Miners, GDXJ 2.1
Energy, XLE, 2.3
Small Cap Consumer Discretionary, PSCD, 2.0
Small Cap Energy PSCE, 1.9
Steel, SLX, 2.1.
Retail, XRT, 2.1
Gaming, BJK, 1.9
Metal Manufacturing, XME, 1.9
Consumer Discretionary, VCR, 1.8
Silver Miners, SIL, 1.6
Real Estate, IYR, 1.1

European Financials, EUFN 1.9
Emerging Market Financials, EFN 2.7
International Dividend, DOO 2.6

Countries rising today included
Germany, EWG
South Korea, EWY
Australia, EWA
Europe, VGK
Switzerland, EWL
Sweden, EWD
United Kingdom, EWU
China. YAO,
Brazil, EWP
South Africa, EZA,
Indonesia, IDX,
India, INDY
Russia, RSX
New Zealand, ENZL
Canada, EWY
Brics, EEB
Emerging Markets, EBB

Developed Market Small Caps Stocks rising today included:
German Small Caps, GERJ 2.5
South Korea Small Caps, SKOR 2.2
Australia Small Caps, KROO, 3.6
Latin America Small Caps,LATM, 2.4
Canada Small Caps, CNDA, 2.2
Brazil Small Caps, BRF, 1.5
Russia Small Caps, RSXJ, 2.1
Spain, EWP, 2.2
Italy, EWI, 2.3

Small Cap Pure Value, RZV 1.7
Small Cap Pure Growth, RZG, 1.8
Mid Cap Growth, JKH 2,2
Small Cap Growth, IWO 2.4

4) … Stocks rising strong included
United States Small Cap Growth Stocks: Decker Outdoor Advertising, DECK,

Semiconductor Equipment Manufacturers such as Teradyne, TER, Kulicke and Soffa Industries, KLIC,  Aixtron,AIXG,

Processing Systems And Equipment: Polycom, PLCM,

DRAM Chips: Micron Technology, MU,

Internet Software: Internet Capital Group, ICGE,

Manufactured Housing Manufacturer: Cavco Industries, CVCO,

Silver Mining: Silver Standard Resources Inc, SSRI,

Computer Peripherals, Universal Display, PANL

Aerospace: BE Aerospace, BEAV,

Printed circuit board manufactures such as Diodes, DIOD

Management Services: Cognizent Technology, CTSH,

Real Estate: Asset Management: Blackstone Group, BX,

Real Estate: Property Management: CB Richard Ellis, CBG,

The Morgan Stanley Cyclicals Index: Automobile Component,Johnson Controls, JCI, rose taking a whole host of automobile industry stocks higher and The Morgan Stanley Cyclicals Index: Building Systems Component, United Technologies, UTX, rose to a new high.

Real Estate: Retail REIT: SL Green Realty, SLG,

5) … Conclusion: The chart of Consumer Staples, XLP, XLV, DIA, JNK, IBB, PSCH, XPH, XBI, communicates that a Stock Market Top is being achieved, Peak Stock Wealth, that is Peak Fiat Wealth is being achieved; the investment demand for gold and silver bullion will continue strong as sovereign debt crisis manifests globally and thus stocks loose there seigniorage.

x

The Seigniorage Of Neoliberalism Completely Fails As The European Sovereign Crisis Intensifies …. Driving Stocks, World Government Bonds, Base Metals, And Currencies Lower

April 19, 2011

Financial Market Report for April 18, 2011

1) … The Euro Fell Lower to close at 141.76
Currency traders commenced competitive currency devaluation, that is competitive currency deflation in currencies other than the US Dollar, as the seigniorage of neoliberalism failed once again.

It failed once before on February 22, 2011, with the exhaustion of QE, as the value of  distressed securities traded by the Fidelity Mutual Fund FAGIX traded lower and the value of the US 10 Year US Government Bond, TLT, traded lower.

The currency yield curve, that is the ratio of the Small Cap Pure Value Shares relative to the Small Cap Pure Growth Shares Weekly, RZV:RZG Weekly, communicates that competitive currency devaluation commenced in late December 2010 and early January 2011 when the US Dollar, $USD, last topped out at 91.

This time it its not the seigniorage of quantitative easing, and QE 2, that failed, but rather the seigniorage of world government bonds, BWX, that have turned lower on failing currencies, DBV, and CEW, and falling European Financial shares, EUFN as the Telegraph reports European Sovereign Debt Crisis Worsens As Investors Bet Against Ireland, Portugal and Greece.

Chart of world government bonds, BWX

Between the Hedges reports The Spain sovereign cds is jumping +4.9% to 246.79 bps, the Italy sovereign cds is soaring +10.36% to 158.08 bps, the Ireland sovereign cds is climbing +6.64% to 608.38 bps, the Portugal sovereign cds is rising +3.47% to 623.88 bps, the Belgium sovereign cds is rising +6.24% to 145.64 bps, the UK sovereign cds is rising +4.0% to 57.94 bps, the Russia sovereign cds is jumping +7.92% to 139.0 bps and the Greece sovereign cds is surging +6.19% to 1,297.50 bps. The Greece and Portugal sovereign cds are making new record highs. Moreover, the Spain sovereign cds continues to surge. The Eurozone Investment Grade CDS Index is jumping +5.51% to 70.08 bps. The US sovereign cds is soaring +18.9% to 49.33 bps and the US Muni CDS Index is climbing +3.0% to 154.38 bps. … Zero Hedge reports Greek 2-Year Bond Yield Passes 20%.

Chart of European Financials EUFN

Open Europe reports Greek restructuring fears send shock waves across European financial markets.  The Greek cost of borrowing reached record highs yesterday and the euro weakened significantly following German Finance Minister Wolfgang Schaueble’s acceptance that Greece may need a debt restructuring in the near future. In an interview with Il Sole 24 Ore, ECB Executive Board member Lorenzo Bini-Smaghi said that a debt restructuring would result in the “failure of a large part of Greece’s banking system”, and that consequently the Greek economy would be “on its knees, with devastating effects on social cohesion and the resistance of the country’s democratic system.”

Handelsblatt reports that Cyprus might be dragged into the eurozone’s debt crisis, because of the dependence of its banks on the Greek market and their high exposure to Greece’s government bonds – up to 37% of Cyprus’s GDP.

The Irish government agreed a revised version of its bailout conditions last night. The new version is reported to include an increase in the minimum wage as well as reductions in employer insurance and VAT in low paid sectors. However, it is also expected to impose further job cuts. Michael Noonan, Irish Finance Minister, suggested that the deal showed that the EU/IMF were willing to negotiate on “unpopular” areas of the bailout agreement. Meanwhile, this morning Moody’s has downgraded Ireland by two notches, leaving its credit rating one notch above junk, and put it on a negative outlook.

EUobserver Irish Times Telegraph FT FT 2 FT 3 FT 4 WSJ WSJ 2 Guardian CityAM Times BBC: Today  Le Monde Les Echos DN WSJ 3 CityAM 2 Irish Times 2 Irish Times 3 FT 5 WSJ 4 WSJ 5 CityAM 3 FT 6 FT:Mallaby Jornal de Negócios Diario Económico Express: Forsyth Economist Economist 2 Economist 3 FT 7 WSJ: Cottle EUobserver 2 Il Sole 24 Ore Handelsblatt Handelsblatt 2 Handelsblatt: Solms Frankfurter Allgemeine Zeitung MNI

The failure of seigniorage globally is seen in the chart of world stocks relative to world government bonds
VT:BWX

Now, debt deflation, that is currency deflation, is at work, driving currencies, treasury bonds of the world’s governments, country stocks and stocks lower despite the onset of earnings season.
Bible prophecy of Revelation 13: 3 communicates that out of  soon coming Götterdämmerung, that is an investment flameout, an adept global leader such as Olli Rehn or Tony Blair, will arise out of a German led European federation of nations, (Revelation 13: 11-18) to provide a new seigniorage, that is, a new moneyness.  He will be known as the Banker or Seignior. He will be complemented by the global Chancellor, the Sovereign, who will oversee a revived Roman Empire in Europe, similar in power and scope to that of Charlemagne, (Revelation 13:5-10) Failed seigniorage world wide, will lead to the rise of ten regions of global trade and economic governance as called for by the Club of Rome in 1974, Revelation 13:1)    

2) … The European Financials and the World’s Banks led world stocks lower
World Stocks, ACWI  –1.4
European Financials, EUFN -3.8%
KB Financial Group of Korea KB
Banco de Chile BCH
HDFC Bank of India, HDB
Bank of America, BAC
Emerging Market Financials, EFN
China Financials, CHIX,
Brazil Financials, BRAF
Banks, KRE

Computer Peripherals
Panel Display, PANL and Kemet, KEM

Small Tools: Welding and cutting tools
Lincoln Electric,  LECO,

Semiconductors
NVIDIA Corp, NVDA

Semiconductor Manufacturers
Kulicke and Soffa Industries, KLIC,  and Aixtron, AIXG,

DRAM Chip Manufacturers
Micron Technology, MU,

Metal Manufacturing,  XME,

Printed Circuit Boards
Vishay Intertech. VSH,

Technology: Instruments
Agilent. A,

Communications Equipment:
Vodafone Airtouch, VOD

Real Estate: Asset Management
Blackstone Group. BX,

Software
Autodesk,  ADSK,

Management Services
Gartner,  IT,

Aerospace::
BE Aerospace,  BEAV,

The Morgan Stanley Cyclical Index:Basic Materials Component
Alcoa Aluminum, AA

The Morgan Stanley Cyclicals Index: Paper:
International Paper, IP

The Morgan Stanley Cyclical Index Agriculture Industry Component
Deere, DE,

The Morgan Stanley Cyclicals Index Building Systems Component
United Technologies,  UTX,

The Morgan Stanley Cyclical Index: Industrial Component
Eaton, ETN

The Morgan Stanley Cyclicals Index: Packaging:
Temple Inland, TIN

The Morgan Stanley Cyclicals Index Chemical Component
PPG Industries,  PPG

The Morgan Stanley Cyclicals Index: Automobiles:
Johnson Controls,  JCI

The Morgan Stanley Cyclicals Index:Basic Materials,
Freeport McMoran Copper and Gold, FCX,

Processing Systems And Equipment:
Polycom, PLCM

Management Services:
Computer Task Group,  CTGX,

Memory Storage: Flash storage
SanDisk, SNDK

Textiles:
Unifi, UFI

Truck Manufacturer
Navistar, NAV

Small Cap Information Technology  PSCT

Agricultural stocks, MOO

Communications Equipment:
Apple Ecosystem ETF: Smarthphone, FONE

Communications:
American Tower,  AMT

Environmental And Waste Services , EVX

Networking shares, IGN

World Real Estate Excluding US  WPS

Internet Retail, HHH

Basic Materials: Steel Industry: Recycler
Metalico, MEA,

Basic Materials: Energy Services
Hercules  Offshore,  HERO

Industrial: Machine Tools
Timken, TKR,

Solar Stocks, KWT

Leisure: Gaming:
MGM Resorts,  MGM

Health Care: Biotechnology:
Cytori Therapeutics , CYTX

Healthcare: Specialized Healthcare
Kindred Healthcare: KND

Industrial: Design And Build
Foster Wheeler, FWLT

Copper Miners, COPX

US Healthcare Provider
Well Care,  WCG,

Health Care Services
Amerigroup,  AGP-

Business Services:
United Rentals, URI

Coal, KOL,

Basic Materials: Natural Gas:
Chesapeake Energy, CHK

China Energy, CHIE,

Consumer Discretionary: Television:
EchoStar, SATS and Liberty Media, LCAPA,

Diversified Equipment: Cummins, CMI

Consumer Discretionary
Select Comfort Corporation,  SCSC

Basic Materials: Small Cap Energy, PSCE
Clayton Williams Energy  CWEI

Steel, SLX,

Industrial: Industrial Automation:
Rockwell Automation, ROK

Financial Information:
FactSet Research Systems, FDS

Global Listed Private Equity (Leveraged Buyouts) PSP

Wood Producers, WOOD

Hard Asset Producers, HAP,

Health Care: Health Care Services:
HMS Holding HMSY

Healthcare, IHF

Health Care:Psychiatric Services
PHC Inc, PHC

Shipping, SEA

Consumer Discretionary:
Harley Davidson, HOG

China Materials, CHIM

3) … World Government Bonds and Emerging Market Bonds Fell Lower as bond vigilantes called interest rates higher globally as credit default swaps rose on sovereign debt.  A global sovereign debt crisis has commenced.
World Government Bonds, BWX
Emerging Market Bonds, EMB

4) …. Base Metals and Timber Fell Lower
Base Metals, DBB
Timber, CUT

5) … Countries Fell Lower As the bond vigilantes called world government interest rates higher and as the BRICS’ central banks raise interest rates in response to inflation, all of which causes demand destruction, investment flight, and corporate profit destruction. Risk appetite turns to risk avoidance.

Best BRIC Stock Rally Since 1997 Seen Doomed as Rates Increase. The longest rally in developing- nation stocks since 1997 may be ending as higher interest rates in Brazil, Russia, India and China curb earnings growth. For the first time in two years, emerging-market analysts are cutting profit estimates more than they’re raising them, consumer stocks are trailing energy producers and shares of smaller companies are losing to larger equities, data compiled by Bloomberg and Morgan Stanley show.

The same reversals foreshadowed the end of the emerging-market rally in 2008. While the benchmark MSCI Emerging Markets Index has gained 0.9 percent this year and mutual fund investors are buying developing-nation equities at the fastest pace in five months, the gauge is valued at about 2.1 times net assets, 11 percent higher than the 15-year average. Societe Generale SA and Barclays Wealth are advising clients to reduce emerging markets investments as inflation erodes record-high profit margins. “Inflation risk is much more visible” in emerging markets than the developed world, said Kevin Gardiner, the global head of investment strategy at London-based Barclays Wealth, which oversees about $266 billion. “Growth is beginning to slow. Meanwhile, valuations look full.” China has increased borrowing costs four times since October, while India raised rates eight times since March 2010 and Brazil boosted its rate five times. Russia lifted its main rate in February. China’s benchmark one-year lending rate is 6.31 percent, while India’s repurchase rate is 6.75 percent and Brazil’s Selic rate is 11.75 percent. Russia’s refinancing rate is 8 percent. Rising costs and interest rates are starting to take a toll on company profits. Gross margin, or the percentage of sales remaining after product expenses, has slipped to an average 31 percent for companies in the MSCI emerging-market index, from 33 percent last year, the highest level since Bloomberg began tracking the annual data in 1996.

Rising commodity prices are “triggering second-round effects via higher wages,” Alain Bokobza, the head of asset allocation strategy at Paris-based SocGen, wrote in an April 11 report titled “The EM Party Is Over.” He recommends switching to developed-nation equities from emerging markets. Infosys was the seventh-biggest contributor to the MSCI index’s 2 percent retreat last week. The gauge’s decline yesterday pared the gain from its March 2009 low to 145 percent. The 21-country index has rallied for 777 calendar days without a drop of at least 20 percent, the longest stretch since July 1997, according to data compiled by Westport, Connecticut-based research firm Birinyi Associates Inc. and Bloomberg. Mutual-fund investors are also reviving bets on a rally. They poured about $10 billion into developing-nation stock funds during the past three weeks, the most in five months, data compiled by Cambridge, Massachusetts-based research firm EPFR Global show. That compares with $28 billion of outflows in the previous nine weeks, EPFR data show.

Analysts are cutting more profit forecasts than they’re raising them for seven of 10 industry group. Small- cap companies, which have market values of less than $2 billion and get a higher proportion of their revenue from consumers, trailed the biggest emerging-market stocks by 5.5 percentage points last quarter, also the most since 2008.  In the MSCI emerging-market gauge, with the biggest reductions on health care, telecommunications and technology companies, according to Morgan Stanley. Consumer stocks in the MSCI emerging-market index trailed energy companies by 10 percentage points in the first quarter, the most since the second quarter of 2008, when emerging-market equities began tumbling amid the global financial crisis. “It’s quite difficult for equity markets to rally if you have negative revisions to the earnings outlook,” Jonathan Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong, said in an interview. “This is quite an important moment and we don’t think the situation will improve in the coming months.” China International Capital Corp., the country’s biggest investment bank, predicts slowing economic and earnings growth will limit equity gains in the biggest emerging stock market. (Hat Tip to Between The Hedges)

Turkey, TUR,
Russia, RSX,
South Africa, EZA
Latin America: Cement Company: Cemex, CX
Canada Small Caps, CNDA
Europe, VGK
New Zealand, ENZL,
India Small Caps, SCIN
Latin America Small Caps, LATM,
Mexico, EWW,
India, INDY
China, YAO,
Brazil, EWZ
The United Kingdom, EWU
Brics, EEB
Chile, ECH,
Sweden, EWD,
Australia Small Caps KROO
South Korea Small Caps SKOR
Brazil Small Caps, BRF
Argentina, ARGT,
Africa, AFK,
Emerging Market Small Cap Dividend  DGS,
Emerging Market Small Cap, EWX
United States Small Cap Growth Stocks,  IWO
United States Russell 2000, IWM
Emerging Markets, EEM
World Small Cap, VSS

6) … The US Dollar Rose and Currencies Fell Lower
The $USD rose as Bloomberg reports S&P Puts ‘Negative’ Outlook on U.S. AAA Credit Rating. My comment is that the rating agencies are always behind the curve. Currencies falling lower included,
FXS -1.7, XRU -1.6, FXE -1.3, BNZ -1.0, SZR -0.8, CEW -0.8, FXM, -0.7, ICN, -0.6, FXF -0.5,
FXC -0.4, FXA -0.4, BZF -0.4, FXB -0.2. The failure of seigniorage is seen in developed currencies relative to emerging market currencies, DBV:CEW topping out as the the world’s developed country Treasuries such as the 10 Year US Government bond, TLT, top out.

7) … Dow Theory relates that a global bear market is underway as industrial shares, IYJ, and transportation shares, IYT have fallen lower in Elliott Wave 3 Down.
DIA -1.2%, NYC -1.5%, SPY -1.1%, The Morgan Stanley Cyclicals Index, $CYC, -1.2%,

8) … Gold and silver are well established as global sovereign currency possessing universal seigniorage. Gold, GLD +0.6%, Silver, SLV +1.4%, Precious Metals, JPP +0.9%. The failure of traditional seigniorage is seen in the fall lower of the HUI Precious metal mining stocks, $HUI, relative to 30 Year US Government Bond, EDV, $HUI:$USB. and in the fall of the silver mining stocks, SIL, especially Silver Standard Resources Inc, SSRI. -0.9%, GDX -1.0, SIL,, -2.4%

The world is transitioning from … an age of leverage, characterized by
credit expansion,
moneyness,
currency expansion,,
and neoliberalism led by democracies
… and into …  an age of deleveraging, characterized by
credit evaporation,
lack of moneyness,
debt deflation,  
and the rise of sovereign authority led by the feudal state corporatism and privatization of government as  described by Mike Mish Shedlock in article Dissolving Government in Michigan

9) … Utilities, XLU, entered an Elliott Wave 3 Down.

10) … Junk Bonds, JNK, turned parabolically lower, confirming the failure of the seigniorage of neoliberalism and the end of credit as it has been known.

11) … Biotechnology, XBI, and IBB, and Health Care Small Caps, PSCH, turned lower manifesting bearish at the top of an ascending wedge.

12) … Inflation Destruction starts demand destruction as Bloomberg reports Iron-Ore Ship Rents Fall to Six-Week Low on Surplus Vessels. Rents for capesize ships that haul iron ore fell to the lowest level in six weeks on excess vessel supply. Hire rates dropped 2.9 percent to $6,655 today, according to data from the Baltic Exchange in London. That’s the lowest since March 7 and the 11th straight decline. Rentals fell 36 percent in the three weeks to April 15. “Ship supply continues to outpace demand for most asset classes,” Jonas Advocaat Kraft, an analyst with Pareto Securities AS in slo, said in a note today. The carrying capacity of the fleet of ships to haul commodities such as coal, iron ore and grains will expand 13 percent this year, compared with a six percent increase in demand, according to forecasts from London-based Clarkson Plc. Companies ordered too many ships in 2007 and 2008, when the Baltic Dry index, a measure of commodity shipping costs, averaged 6,730 points. The index then plunged 60 percent during the next two years, according to the exchange. The gauge fell 0.9 percent to 1,284 points today, a 15th straight drop. Hat Tip to Gary Of Between The Hedges)

Chart of Iron Ore Manufacture Cliffs Natural Resources, CLF

13) … Doug Noland in article Making Room for China writes on the Global Government Finance Bubble which is coming to full expansion at the end of the Age of Leverage heralding the emergence of a global sovereign debt crisis. I fully expect the value of world government bonds, BWX, to begin to tumble quickly. Mr. Noland states:

“When it comes to Bubble Analysis, the stunning expansion of Treasury debt and Federal Reserve Credit offers an easy target.  Yet I’ve posited for two years now the emergence of something quite more expansive – a “Global Government Finance Bubble.”  The key dynamics involve an extraordinary expansion of government borrowings and central bank balance sheets around the world – developed and “emerging.” I have argued that China is in the midst of the “terminal phase” of Credit Bubble excess, a circumstance that has created powerful financial and economic interplays with respective U.S. and global Bubbles.

The current environment could not be more fascinating from the standpoint of analyzing Credit and Bubble dynamics.  Most everyone is dismissive of the notion of some new Bubble, in the U.S. or elsewhere.  Few are willing to see anything resembling huge excess or market distortions.  Meanwhile, charts of Treasury debt, the Fed’s assets, and Chinese reserve holdings confirm that something unique in the history of finance is unfolding right before our eyes.

It’s worth a brief review of the week’s economic data out of China.  At 9.7%, first quarter Chinese growth was stronger-than-expected – and the fastest pace of expansion since 2008.  March exports were 35.8% higher y-o-y, outpacing imports that expanded 27.3%.  Also above consensus forecasts, industrial production advanced 14.8% and retail sales jumped a brisk 17.4%.   The value of first quarter home sales increased a notable 26% from the year ago period.  New home construction was up 20% during the quarter.  It all points to another record year of Credit growth.

There is not yet much to show for Chinese government efforts to impose some monetary restraint.  March bank lending increased to $104bn, 16% ahead of estimates.  At almost $380bn, first quarter bank lending was significantly above target.  March M2 money supply growth of 16.6% was also above estimates.  In its warning this week on Chinese debt, Fitch noted that loans to the Chinese corporate and household sectors last year jumped to 140% of GDP, up from 111% back in 2008.   At 5.4%, March year-over-year consumer price inflation was the highest since 2008, with food inflation jumping to 11.7%.  And while on the subject of inflation, consumer prices have been rising at an almost 9% pace in India.

It is a tenet of Credit Bubble analysis that Bubbles over time become progressively impervious to government tightening measures.  A key facet of a Bubble’s “terminal” phase is that only aggressive intervention will work to restrain broadening lending, speculating, and spending excesses.  Excess begets excess.  Meanwhile, the perception of escalating risks associated with intervention virtually ensures policymaker timidity.  This remains my expected course for China.

China has clearly reached the point where it plays a critical role as marginal buyer of global energy, commodities and, increasingly, goods and services, while at the same time operating as a key source of liquidity for global financial markets.  Central to the global Bubble thesis is that government stimulus from Washington to Beijing has boosted growth, while also profoundly impacting marketplace liquidity, global financial flows and the perception of risk throughout the markets.  The global liquidity backdrop is increasingly a serious problem for China, and Chinese inflation is a growing issue for the world.

The weak dollar, in particular, has been critical to the unleashing of Credit and speculation excess throughout the so-called “emerging” markets.  China and the other Bric countries continue to operate in a highly unusual environment of rampant Credit growth and mounting imbalances, while at the same time enjoying rock solid currencies relative to the soft dollar.  QE2 incited a whirlwind of “hot money” flows out to various “undollar” destinations, including energy and commodities, the emerging economies and China.  And the incredible growth in Chinese international reserves is confirmation of the scope of today’s global “hot money” flows.  It is worth noting that Chinese reserve growth had slowed markedly in 2010, before accelerating rapidly after the Fed’s decision to proceed with another round of quantitative easing.

The Fed is keen to absolve its rate policy and “QE2” as responsible for surging energy and commodities prices – pointing instead to robust Chinese and the developing world demand.  I would be curious to hear how they see zero rates and quantitative easing as having impacted the dollar, as well as what role the weak dollar has played on global speculation and financial flows.  Do they see a connection between their monetization of Treasury debt, resurgent speculative trading and asset inflation, enormous “hot money” flows, the rapid expand expansion of Chinese reserve holdings, and the “recycling” of these dollar balances right back to the Treasury market?  Are they oblivious to the self-reinforcing nature of these Monetary Processes – to such Bubble Dynamics?

Pronouncements from this week’s meeting of the Brics countries (Brazil, Russia, India, China and, included in meetings for the first time, South Africa) made it rather clear where they stand:  “Excessive volatility in commodity prices, particularly those for food and energy, poses new risks…”  “We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economies.”  Brics leaders are calling for more regulation of derivatives markets.  They also seek a modified global monetary system with a reduced role for the dollar and less dictated by U.S. and developed world monetary policies.  And one of these days they may actually impose their will.

count me skeptical on their capacity to manage an increasingly complex inflation problem.  It is today unclear that they are succeeding in attempts to slow rapid bank lending.  At the same time, they confront massive inbound financial flows.  I am not convinced that they have a handle on the myriad sources of non-bank Credit expansion (domestic and international) impacting their economy and various price levels.  The overall financial environment remains too loose, yet aggressive rate hikes would lead to only more destabilizing “hot money” inflows.

Chinese authorities have apparently achieved success in reducing trade imbalances.  One could argue that they are meeting the global call to boost consumption, a least partially accomplished through the rapid inflation in wages and incomes.  Indeed, the historic inflation of system Credit, incomes, corporate cash flows, asset prices, and household net worth greatly surpasses even the Japanese Bubble experience.  And, increasingly, this enormous expansion in purchasing power is stoking inflationary pressures at home and abroad – and risks an inflationary wage-price spiral.

Pimco’s Mohammed El-Erian, while espousing a bullish view on China, suggested that there was a potential issue with the “world making room” for China.  This is a good way of thinking about it.

Until recently, the ultra-loose liquidity backdrop ensured that China (and others) invested enormous amounts in manufacturing capacity.  Despite global Credit Bubble excesses, price pressures were mainly relegated to securities and real estate prices.  Many argued that China – and the emerging economies – were “exporting deflation.”  There are indications that the nature of inflationary forces is changing.

I am of the view that we have likely passed a tipping point where China and the “emerging” economies now exert increasingly strong inflationary pressures upon the global economy.  Rapidly growing developing world incomes would tend to support elevated energy and commodities prices, while ensuring an upward inflationary bias in much that is produced globally.  The cheap wages and low cost structures that combined with cheap finance to ensure seemingly endless goods seem to have run their course.  It is worth noting that U.S. March import prices were up 9.7% y-o-y, with Producer price inflation trailing somewhat at 5.8%.

The Fed sees things altogether differently, clinging to the notion that the recent jump in energy and commodities prices will have only a “transitory” impact on inflation.  They view “inflation” through a myopic focus on “core CPI” – and just don’t discern much having changed in the world.  But when I examine global price pressures, I see important dynamics that have been years in the making.  

The confluence of a persistently weak dollar, booming real and speculative demand for commodities, massive “hot money” flows, and rapid Credit and wage growth throughout the increasingly powerful “developing” world is in the process of fundamentally altering global price structures.  Meanwhile, developed world structural debt problems and vulnerable recoveries ensure unrelenting monetary looseness.

Yield charts for Greek, Irish and Portuguese debt suggest that the world is neither oblivious to structural debt problems nor the difficulties in trying to rectify them.  At the same time, expectations for ongoing near-zero Fed funds place a low ceiling on Treasury (and related) yields.  I would argue that a heavily distorted “Bubble” market for determining U.S. Treasury yields disregards risks associated with U.S. structural debt issues and a rapidly deteriorating inflation backdrop.  One of these days, China and fellow Brics nations may arrive at the conclusion that the best hope they have for reining in “hot money,” surging commodities prices, and increasingly unwieldy inflation is to back away from supporting our debt markets.”

Will China’s Price Controls Work … India Stock Prices Fall As Inflation Rages

April 16, 2011

EconomicPolicy Journal.com reports China imposes price controls

Unni Krishnan and Kartik Goya Bloomberg report India Inflation Accelerates More Than Forecast to 8.98% Adding Pressure on Rates. “India’s inflation accelerated more than economists estimated in March as the cost of fuel and manufactured goods rose, putting pressure on policy makers to raise interest rates. Asia’s third-largest economy. The benchmark wholesale-price index rose 8.98 percent from a year earlier after an 8.31 percent gain in February, the commerce ministry said in a statement in New Delhi today. That exceeded all 28 estimates in a Bloomberg News survey, where the median forecast was for an 8.36 percent increase. Expansion in India’s $1.3 trillion economy has boosted consumer demand and spurred manufacturing, car sales and credit growth, stoking price risks and prompting the central bank to raise rates eight times since early 2010. Inflation in the first quarter has exceeded the Reserve Bank of India’s forecast that price increases would be 8 percent by the end of March this year. “Inflation is going to remain uncomfortably high this year,” said Leif Eskesen, Singapore-based chief economist at HSBC Holdings Plc. “The RBI needs to raise rates more aggressively and we are looking at three more rate increases this year.” Stocks dropped the most in seven weeks, with the Bombay Stock Exchange’s Sensitive Index falling 1.6 percent. The yield on the 8.08 percent bond due in August 2022 rose 4 basis points to 8.24 percent, the highest level since Feb. 8, as of the 5 p.m. close in Mumbai. “

Siddharth Philip of Bloomberg reports:  “Mumbai intends to begin work next year on a bridge costing as much as 110 billion rupees ($2.5bn) as it acts on an idea first proposed in the 1960s to curb traffic jams.  The 22-kilometer ‘Mumbai Trans Harbour Link,’ connecting the island city with the mainland Navi Mumbai district, will open before a new airport begins operations in 2014”

Charlie Devereux of Bloomberg report:  “Venezuela raised price caps on powdered milk and vegetable oil by as much as 48%, according to a resolution published today in the Official Gazette.

Bloomberg reports:  “The leaders of Brazil, Russia, India, China and South Africa said excessively volatile commodity prices pose a threat to the global economy and called for greater regulation of derivatives markets.”

Doug Noland in article Making Room for China writes on the Global Government Finance Bubble which is coming to full expansion at the end of the Age of Leverage heralding the emerging of a global sovereign debt crisis. I fully expect the value of world government bonds, BWX, to tumble.

Chart of BWX

Mr. Noland states:

When it comes to Bubble Analysis, the stunning expansion of Treasury debt and Federal Reserve Credit offers an easy target.  Yet I’ve posited for two years now the emergence of something quite more expansive – a “Global Government Finance Bubble.”  The key dynamics involve an extraordinary expansion of government borrowings and central bank balance sheets around the world – developed and “emerging.” I have argued that China is in the midst of the “terminal phase” of Credit Bubble excess, a circumstance that has created powerful financial and economic interplays with respective U.S. and global Bubbles.

The current environment could not be more fascinating from the standpoint of analyzing Credit and Bubble dynamics.  Most everyone is dismissive of the notion of some new Bubble, in the U.S. or elsewhere.  Few are willing to see anything resembling huge excess or market distortions.  Meanwhile, charts of Treasury debt, the Fed’s assets, and Chinese reserve holdings confirm that something unique in the history of finance is unfolding right before our eyes.

It’s worth a brief review of the week’s economic data out of China.  At 9.7%, first quarter Chinese growth was stronger-than-expected – and the fastest pace of expansion since 2008.  March exports were 35.8% higher y-o-y, outpacing imports that expanded 27.3%.  Also above consensus forecasts, industrial production advanced 14.8% and retail sales jumped a brisk 17.4%.   The value of first quarter home sales increased a notable 26% from the year ago period.  New home construction was up 20% during the quarter.  It all points to another record year of Credit growth.

There is not yet much to show for Chinese government efforts to impose some monetary restraint.  March bank lending increased to $104bn, 16% ahead of estimates.  At almost $380bn, first quarter bank lending was significantly above target.  March M2 money supply growth of 16.6% was also above estimates.  In its warning this week on Chinese debt, Fitch noted that loans to the Chinese corporate and household sectors last year jumped to 140% of GDP, up from 111% back in 2008.   At 5.4%, March year-over-year consumer price inflation was the highest since 2008, with food inflation jumping to 11.7%.  And while on the subject of inflation, consumer prices have been rising at an almost 9% pace in India.

It is a tenet of Credit Bubble analysis that Bubbles over time become progressively impervious to government tightening measures.  A key facet of a Bubble’s “terminal” phase is that only aggressive intervention will work to restrain broadening lending, speculating, and spending excesses.  Excess begets excess.  Meanwhile, the perception of escalating risks associated with intervention virtually ensures policymaker timidity.  This remains my expected course for China.

China has clearly reached the point where it plays a critical role as marginal buyer of global energy, commodities and, increasingly, goods and services, while at the same time operating as a key source of liquidity for global financial markets.  Central to the global Bubble thesis is that government stimulus from Washington to Beijing has boosted growth, while also profoundly impacting marketplace liquidity, global financial flows and the perception of risk throughout the markets.  The global liquidity backdrop is increasingly a serious problem for China, and Chinese inflation is a growing issue for the world.

The weak dollar, in particular, has been critical to the unleashing of Credit and speculation excess throughout the so-called “emerging” markets.  China and the other Bric countries continue to operate in a highly unusual environment of rampant Credit growth and mounting imbalances, while at the same time enjoying rock solid currencies relative to the soft dollar.  QE2 incited a whirlwind of “hot money” flows out to various “undollar” destinations, including energy and commodities, the emerging economies and China.  And the incredible growth in Chinese international reserves is confirmation of the scope of today’s global “hot money” flows.  It is worth noting that Chinese reserve growth had slowed markedly in 2010, before accelerating rapidly after the Fed’s decision to proceed with another round of quantitative easing.

The Fed is keen to absolve its rate policy and “QE2” as responsible for surging energy and commodities prices – pointing instead to robust Chinese and the developing world demand.  I would be curious to hear how they see zero rates and quantitative easing as having impacted the dollar, as well as what role the weak dollar has played on global speculation and financial flows.  Do they see a connection between their monetization of Treasury debt, resurgent speculative trading and asset inflation, enormous “hot money” flows, the rapid expand expansion of Chinese reserve holdings, and the “recycling” of these dollar balances right back to the Treasury market?  Are they oblivious to the self-reinforcing nature of these Monetary Processes – to such Bubble Dynamics?

Pronouncements from this week’s meeting of the Brics countries (Brazil, Russia, India, China and, included in meetings for the first time, South Africa) made it rather clear where they stand:  “Excessive volatility in commodity prices, particularly those for food and energy, poses new risks…”  “We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economies.”  Brics leaders are calling for more regulation of derivatives markets.  They also seek a modified global monetary system with a reduced role for the dollar and less dictated by U.S. and developed world monetary policies.  And one of these days they may actually impose their will.

count me skeptical on their capacity to manage an increasingly complex inflation problem.  It is today unclear that they are succeeding in attempts to slow rapid bank lending.  At the same time, they confront massive inbound financial flows.  I am not convinced that they have a handle on the myriad sources of non-bank Credit expansion (domestic and international) impacting their economy and various price levels.  The overall financial environment remains too loose, yet aggressive rate hikes would lead to only more destabilizing “hot money” inflows.

Chinese authorities have apparently achieved success in reducing trade imbalances.  One could argue that they are meeting the global call to boost consumption, a least partially accomplished through the rapid inflation in wages and incomes.  Indeed, the historic inflation of system Credit, incomes, corporate cash flows, asset prices, and household net worth greatly surpasses even the Japanese Bubble experience.  And, increasingly, this enormous expansion in purchasing power is stoking inflationary pressures at home and abroad – and risks an inflationary wage-price spiral.

Pimco’s Mohammed El-Erian, while espousing a bullish view on China, suggested that there was a potential issue with the “world making room” for China.  This is a good way of thinking about it.

Until recently, the ultra-loose liquidity backdrop ensured that China (and others) invested enormous amounts in manufacturing capacity.  Despite global Credit Bubble excesses, price pressures were mainly relegated to securities and real estate prices.  Many argued that China – and the emerging economies – were “exporting deflation.”  There are indications that the nature of inflationary forces is changing.

I am of the view that we have likely passed a tipping point where China and the “emerging” economies now exert increasingly strong inflationary pressures upon the global economy.  Rapidly growing developing world incomes would tend to support elevated energy and commodities prices, while ensuring an upward inflationary bias in much that is produced globally.  The cheap wages and low cost structures that combined with cheap finance to ensure seemingly endless goods seem to have run their course.  It is worth noting that U.S. March import prices were up 9.7% y-o-y, with Producer price inflation trailing somewhat at 5.8%.

The Fed sees things altogether differently, clinging to the notion that the recent jump in energy and commodities prices will have only a “transitory” impact on inflation.  They view “inflation” through a myopic focus on “core CPI” – and just don’t discern much having changed in the world.  But when I examine global price pressures, I see important dynamics that have been years in the making.  The confluence of a persistently weak dollar, booming real and speculative demand for commodities, massive “hot money” flows, and rapid Credit and wage growth throughout the increasingly powerful “developing” world is in the process of fundamentally altering global price structures.  Meanwhile, developed world structural debt problems and vulnerable recoveries ensure unrelenting monetary looseness.

Yield charts for Greek, Irish and Portuguese debt suggest that the world is neither oblivious to structural debt problems nor the difficulties in trying to rectify them.  At the same time, expectations for ongoing near-zero Fed funds place a low ceiling on Treasury (and related) yields.  I would argue that a heavily distorted “Bubble” market for determining U.S. Treasury yields disregards risks associated with U.S. structural debt issues and a rapidly deteriorating inflation backdrop.  One of these days, China and fellow Brics nations may arrive at the conclusion that the best hope they have for reining in “hot money,” surging commodities prices, and increasingly unwieldy inflation is to back away from supporting our debt markets.

Countries falling lower this week
RSX -4.5
EZA -4.8
CNDA -4.5
EWZ -3.1
EWP -3.1

Stocks falling lower this week
COPX -5.5

SIL -6.2
ALUM -3.5
KWT -4.8
GDXJ -4.1
GDX -3.9
HAP -2.7
XLE -3.2
IEZ -3.1
OIH -3.6
IYM -3.0
KRE -2.6
EUFN -3.0
EEB -2.5

Detroit Dies As A City … State Corporate Rule Of Residents Will Establish Detroit As A Modern Feudal City … Layoff Notices Are Going Out To All its 5,466 Public Teachers

April 16, 2011

We are witnessing the end of Detroit as a municiplity. The citizens are seeing the end of democratic government. The beginning of state corporate rule of Detroit as a modern feudal city has commenced as  Reuters reports Detroit to send layoff notices to all its [5,466] public teachers.


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