Financial market report on August 31, 2010
The safe-haven investments Gold, Silver, Bonds, and Thailand soared as currency traders massively sold a number of yen carry trades.
Stocks, ACWI, resisted falling from a ledge of support today, the last trading day of the month. Oil, USO, being in abundant supply, fell 3.3% on the lower on the major currencies yen carry trade, DBV:FXY. The more resilient emerging market currencies, CEW:FXY, supported a 2.0% rise in Thailand, THD. Energy service companies, OIH, fell lower with the falling price of oil. The 200% of gold, DGP, rose 1.9%
The rise in CEW relative to DBV, CEW:DBV, accounts for the Bespoke Investment Group report that the major emerging market ETF, EEM, actually outperformed most developed countries with an August decline of 3.24%. Small cap pure value, RZV, was a major loss leader during August 2010; as was small cap consumer discretionary stocks, XLYS. Utilities, XLU, and diversified utilities, were a safe haven investment during August. The country of Spain, EWP, was a major monthly loss leader, while Thailand, THD, was a safe-haven. Natural Gas, UNG, due to an abundance of supply, lost 22.8%.
Banks, KBE, the Too-Big-Too-Fail Banks, RWW, and the Russell 2000, IWM, are all examples of the stocks that managed to hold on today; Bank of America, BAC, being a case in point rising 1.1%. This as BusinessInsider presents the chart of the day: Number Of “Problem” Banks Hits Brand-New High. When the stock market does fall the 300% inverse of the financials, FAZ, will be a major winner for investors.
Japan, EWJ, could not withstand the higher, Yen, FXY, and fell 1.0%.
The currency traders took the Swiss Franc, FXF, above a recent high, and the yen, FXY, back near its recent high. And they took a number of currencies lower, including the Mexico Peso, FXM, the British Pound Sterling, FXB, the Candian Dollar, FXC.
Mexico, EWW, withstood the assault on its currency, and rose 0.7%. Mexico shares are very damaged; and have a wave structure much like the Russell 2000, IWM, which fell 0.2%, which justifies being 200 short with SJH. The chart of the Mexico Peso, FXM, reads terrifically bearish, and may manifest as three black crows tomorrow, September 1, 2010, justifying an investment in the 200% inverse of Mexico, SMK. The 200% inverse of the Russell 2000 Value Shares, SJH, is ready and waiting to reward investors when the fall comes.
The UK, EWU, rose 0.4% to its 20 day moving average.
Canada, EWC, fell 0.4% to its 20 day moving average.
The Euro, was stable, rising 0.03%, enabling European shares, FEZ, to rise 0.4%. European Financials, EUFN rose 0.8%, Spain, EWP, 1.2%, and Ireland, EIRL, 2.4%, in spite of a lower, EUR/JPY as seen in the chart of FXE:FXY. When the stocks do fall those invested 200% short the European shares with EPV will gain quite well.
European Financials, EUFN, rose 0.8%
Yes, Ireland, EIRL, rose 2.4% even though Bloomberg reports that Irish Government, Banks Debt Risk Rises, Default Swaps Show. The cost of insuring against default on Irish government and bank debt rose, according to data provider CMA. Marshall Auerback wrote insightfully in SeekingAlpha article Ireland in Decline, Or, What Austerity Looks Like, relating that there will be massive casualties among the poor and disadvantaged; Ireland is exhibit A. And Economic Policy Journal covers The Expected Future Deterioration In Ireland.
The Swiss Franc Australian Dollar carry trade went into the stratosphere rising 1.0%, as seen in the chart of FXF:FXA; and the Swiss Franc Euro Dollar carry trade did so as well rising 1.0% as seen in the chart of FXF:FXE.
The US Dollar, $USD, closed unchanged at its 20 day moving average.
While world stocks, VT, resisted the strong sell off of currencies, with a 0.1% gain, base metals, DBB, fell 1.0% lower on the lower carry trades falling, taking the copper miners, COPX, 0.9% lower. Tin, JJT, fell 4.0%.
Sweden, EWD, (whose currency Swiss Franc, FXS, was not reported today), rose 1.0%. The fact EWD is heavily weighted with telecom manufacturer, Ericsson Telephone, ERIC, Financial Institution, Nordea Bank, NDBAY.PK, and vehicle manufacturer, Volvo Corporation, VOLVY.PK, does not auger well for the future of EWD.
Gold mining stocks, GDX, rose 0.9%, and the junior gold mining shares, GDXJ, rose 1.4, on support from rising US Treasury shares, that is the US Ten Year Note, IEF, +0.45%, the US Government Bonds, TLT, +1.10%, and the Zeroes, ZROZ, +1.80%.
The ratio of the HUI precious metal shares, relative to US Treasuries, $HUI:$USB, shows trading at the apex of a consolidation triangle, that is a broadening top pattern suggesting that a top is being make in both the gold mining shares, GDX, and the junior gold mining shares, GDXJ. The chart of gold relative to the junior gold mining shares, GDXJ:GLD, suggests that gold is now outperforming the mining shares, and that when either the stock market turns lower, or the US Treasuries turn lower, gold mining shares will fall lower as well. The chart of the 100% inverse of the Canadian gold mining shares, HIG.TO, shows what is likely turning into a spiked bottom representing a buying opportunity.
One could call today “a rush to a perceived safe haven of lower interest rates”, as the interest rate on the 20 to 30 Year US Government Bonds, $TYX, fell; and the rate on the US Ten Year Note, TNX, fell, as well.
Given that the market failed to break today, and given the rush into US Treasuries, we are a historic point of systemic risk.
The chart of 30-10 Yield Curve, $TYX:$TNX, steepened somewhat, showing tht investors embraced the risk of bond default, as a better choice than the risk of being invested in stocks, being that investors rushed into the 20 to 30 Year US Government Bonds, TLT, and even the extremely volatile Zeroes, ZROZ.
The monthly chart of the 30-10 Yield Curve, $TYX:$TNX, shows the deadly rushing embrace of US sovereign debt that has come with a steepening yield curve. When debt deflation comes to bonds, that is when capital takes flight from bonds, the United States is going to be ground zero for austerity. Perhaps the social turmoil and disruption will be so great that a deployment of global peacekeeping troops will be announced by the President making the statement of Henry Kissinger as reported by ThinkExist a reality: Today Americans would be outraged if U.N. troops entered Los Angeles to restore order; tomorrow they will be grateful! This is especially true if they were told there was an outside threat from beyond whether real or promulgated, that threatened our very existence. It is then that all peoples of the world will pledge with world leaders to deliver them from this evil. The one thing every man fears is the unknown. When presented with this scenario, individual rights will be willingly relinquished for the guarantee of their well-being granted to them by their world government.” – Henry Kissinger in an address to the Bilderberger meeting at Evian, France, May 21, 1992. (In an address to the Bilderberger organization meeting at Evian, France, on May 21, 1991. As transcribed from a tape recording made by one of the Swiss delegates. )”
Bonds, BND, rose to a new high of 82.89; its monthly chart goes beyond three white soldiers to show four of these — warning of an impending and fast reversal in trend.
Emerging market bonds, EMB, are no safe haven investment, as they traded lower, and then managed to crawl back up to support today; all I can say about emerging market bonds is “look out below”. Their small turn lower is a preamble and precursor to the even more dramatic fall that is coming to US Sovereign Debt.
Gold, GLD, blasted 1.0% higher on the risk of stocks falling lower from the lower carry trades.
Silver, SLV, being manic, and now confirmed as a currency, in addition to being a base metal, jumped higher 1.6% today, continuing its breakout of a consolidation triangle on August 25, 2010, sending the its 200% ETF, AGQ, soaring.
I personally am invested in gold bullion, $GOLD, as I see a liquidity crisis coming soon; but I provide a courtesy chart site suggesting 20 ETFs to sell short and 12 ETFs to buy long for a debt deflationary bear market
Google Finance chart shows monthly ETF losers were Small Cap Pure Value, RZV, 11% Semiconductors, SMH, 11%, Small Cap Consumer Discretionary, XLYS, 11%, Ireland, EIRL, 10%, Sweden, EWD, 7%, Spain, EWP, 7%.
Google Finance chart shows monthly 200% inverse ETF gainers were Semiconductors, SSG, 25%, Small Cap Pure Value, SJH, 15%, Mexico SMK, 11% and Europe EPV, 8%.
Google Finance chart shows monthly 200% ETF gainers were DGP, 11%, and Silver, AGQ, 14%.
In today’s news
Mark Jewell, of the Associated Press reports that Morgan Chase & Co. is shutting down its proprietary trading desks and eliminating around 80 jobs to comply with new restrictions on investment banks.
Bloomberg reports Corporate Default Swaps Head for Biggest Monthly Rise Since May in Europe. The cost of insuring against losses on European corporate bonds rose, posting the biggest monthly increase since May, on concern a slowdown in the U.S. recovery will trigger a global double-dip recession.
Bloomberg reports that Some At Fed Saw That August Decision To Buy Mortgage Backed Securities Would Send Wrong Signal. Some Federal Reserve officials were concerned last month that a decision to stop their securities holdings from shrinking would send the wrong signal that the central bank was ready to resume large-scale asset purchases, minutes of the Aug. 10 meeting showed.
The US and China trade war escalated as Bloomberg reports that Chinese Aluminum Goods to Face Higher U.S. Tariffs After Subsidies Ruling. Chinese exporters of aluminum products used in window and door frames will face higher U.S. tariffs after the Commerce Department ruled that they receive unfair government subsidies. In a preliminary decision released today, the department said the additional tariff would be as much as 138 percent in a case brought by the United Steelworkers union and closely held aluminum manufacturers in nine U.S. states.
Ben Feller of the Associated Press reports that President Obama says US Combat In Iraq Over, Time To Turn Page.