Stocks Rally On ECB Announcement To Continue With Debt Purchases

Financial Market Report for December 2, 2010

I … World Stocks, ACWI, rose today

Pan Pylas, of the Associated Press reports ECB extends special crisis measure, but gives no sign bond buys will expand. The European Central Bank stepped up its efforts to contain the continent’s government debt crisis, as ECB head Jean-Claude Trichet announced the bank will prolong special measures that provide ready cash to banks and steady the financial system.

World Stocks, ACWI, up 1.7%

World Government Bonds, BWX, up 0.9%

International Corporate Bonds, PICB, up 0.2%
II … Risk acceptance returned again today to stocks as yen carry trade investing took most countries and sectors higher

Abagail Moses of Bloomberg reports Italy, Spain Lead Drop in Debt Risk On ECB Bond Buying Bets. Italy and Spain led a decline in the cost of insuring against losses on European government debt on speculation the European Central Bank will boost bond purchases to calm markets. Credit-default swaps on Belgium, Portugal and Ireland also fell from record high levels, helping to push down the region’s benchmark index of sovereign swaps from an all-time high. A gauge of subordinated bank debt risk dropped from a 20-month peak.

Joe Weisenthal provides the chart of the day The Euro: An Insane 12 Hours In Euroland: If you wanted more evidence that the excitement in the markets doesn’t happen during market hour, you only need look at a chart of the Euro between midnight and noon today, when it swung wildly on speculation, auction details, and interpretation of Jean-Claude Trichet.

EZA, South Africa, 4.0%
EWZ, Brazil, 1.1%
ENZL, New Zealand, 0.85
EWU, United Kingdom, 1.85
CNDA, Canada Small Caps, 2.0%
EWA, Australia, 2.4%
KROO, Australia Small Caps, 2.45
VGK, Europe, 2.3%
EWD, Sweden, 2.0%
INP, India, 2.2%
RSX, Russia, 2.8%
EWG, Germany, 2.0%
EWW, Mexico, 1.1%
EWY, Korea, 1.7%
SKOR, Korea Small Caps, 1.0%
EWL, Switzerland, 2.0%
EEM, Emerging Markets, 2.0%
EWO, Austria, 2.8%
PLND, Poland 2.5%
EWL, Switzerland, 2.0%
EWZ, Brazil, 1.1%
BRF, Brazil Small Caps, 1,2%
INP, India, 2.1%
SCIF, India Small Caps, 1.9%
EWD, Sweden, 2.0%
ESR, Emerging Europe, 3.3%
RSX, Russia, 2.8%
FXI, China, 1.4%
EIRL, Ireland 3.0%
EWI, Italy, 2.9%
EWP, Spain, 3.3%

Financial stocks rose strongly on the ECB’s announcement.
EMFN, Emerging Market Financials, 2.4%
EUFN, European Financials, 3.2%
KBE, Banks, 3.9%
QABA, Community Banks, 2.1%
KCE, Capitol Market Providers, 3.4%
IYG, Financial Services, 3.0%
IXG, Global Financial, 2.3%
CME, CME Group, 4.1%

Basic Material stocks rose strongly on yen carry trade investing.
DBN, Basic Materials, 2.7%
COPX, Copper Miners, 2.9%
XME, Metal Manufacturing 2.2%
SLX, Steel Manufacturers, 2.6%
OIH, Energy Services, 1.55

Home Building stocks and home improvement stores soared higher.
ITB, Home Building, 3.4%
HD, Home Improvement Stores, Home Depot, 5.5%
LOW, Home Improvement Stores, Lowes, 4.9%

Small Cap Pure Growth shares rose.
RZG, Small Cap Pure Growth, 0.9%

Composite Indexes rose.
NYC, New York Composite, 1.5%
IWM, Russell 2000, 1.0%
SPY, S&P, 1.3%
QTEC, The Nasdaq 100 blasted 1.6% higher out of a consolidation wedge.
III … Commodities rose, as yen carry trade investing fed risk appetite.
Commodities, DBC, 0.9%
Base Metals, DBB, 1.15
Oil, USO, 1.5%
Timber, CUT, 3.5%
Copper, JJC, 0.8%
Lead, LD, 4.6%
Tin, JJT, 2.3%
Nickle, JJN, 0.1%

IV … Stocks, Bonds And ETFs Stocks Are At Risk From A Sudden Loss Of Value

Currency Angst, lessened as the ratio of Small Cap Pure Value Shares, RZV, relative to Small Cap Pure Growth Shares, RZG, rose. And as a result debt deflation in stocks was held in abeyance, but it has not been abated … RZV:RZG.

Risk avoidance turned to risk acceptance and the currency sensitive shares rose: Diversified Utility, CNP, International Discretionary, IPD, International Dividend Payer, DOO, Philippines, EPHE, Turkey, TUR, Indonesia, IDX, Leveraged Buyouts, PSP, Small Cap Pure Value, RZV,

Currencies trading up strongly today included, SZR, FXC, FXF, FXS, FXA, FXE. ICN, FXM,

The Euro, FXE. rose 0.7% to close at 131.77.

On November 4, 2010, bond vigilantes reacted to the Fed announcement of QE 2 of money printing operations, by sustaining the Interest rate on the US 30 Year US Government Note, $TYX, higher.

And also in late October and early November 2010, the bond vigilantes called peripheral Europe sovereign debt interest rates higher as Mrs Merkel’s called for a sovereign debt default mechanism, and as she also called for bondholders to take a haircut.

Investors sold World Corporate Bonds, BWX, and International Corporate Bonds, PICB, and placed carry trade investments in selected groups of stocks such as Retail, XRT,  RTH, Semiconductors, XSD, and Nuclear Power, NLR, and sold the European Shares, VGK  and the European Financial Institutions, EUFN.  Silver, SLV, and gold, GLD, moved massively higher.

Since November 5, 2010, a global debt deflationary bear market has been underway as currency traders initiated a global currency war against the world central banks by successfully selling the world currencies. 

Accumulated currency losses inflicted by the currency traders are as follows: Euro, FXE, 5.7%, New Zealand Dollar, BNZ, 5.4%, Swedish Krona, FXS, 4.3%, Australian Dollar, FXA, 3.9%, British Pound Sterling, FXB, 3.7%, Russian Ruble, XRU, 3.6%, Swiss Franc, FXF, 3.0%. These as well as all the ETF traded currencies is seen in this MSN Finance chart.

Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.” 

There has been a death cross in the chart of the World Stocks relative to Commodities, ACWI:DBC, meaning that stocks have succumbed to currency deflation. And meaning that those invested in commodities are overextended.

Tyler Durden reports Goldman Sachs upgraded its rating on financial sector stocks. I give no, repeat no, such encouragement. I believe that the financial stocks are toxic and dangerous to one’s investment wealth. Goldman Sachs advisories are a “contrary indicator”, suggesting that one should take an opposite course of action, in this case flee the banks. Corporate investors who for one reason or another cannot invest in gold, should go short the financial and bank shares, as in a bull market one buys in dips and in a bear market one sells into strength.      

Today was simply a rally in a debt deflationary bear market, that is a currency deflationary bear market. Stocks will be going down again. The most deflationary of all bear market ETF, Direxion Daily Emerging Markets Bear 3X Shares, EDZ, has turned up November 4, 2010, as is seen in this chart of EDZ. The bear, not the bull, is in charge of the markets. The bear is termed a “global currency war” by the currency traders, as they have introduced competitive currency deflation, that is competitive currency deflation, on rising interest rates globally. This bear market is largely unseen to many because of the flight to safety in US dollar stocks, such as the Nasdaq 100, QTEC, and the S&P, SPY. Yet, the currencies tell the story that a bear market is on.         

The disparity caused by a perceived flight to safety in a number of US stock sectors, such as retail, XRT,  RTH, semiconductors, XSD, Internet, HHH, FDN, PNQI, and a flight out of European Shares, VGK, along with the potential for a strong sell off sovereign debt, such as EDV, TLT, BWX, and International Corporation Bonds, PICB, as well as the potential for a strong sell off of European Financial Institution, EUFN, creates the risk of Götterdämmerung, that is an investment flameout.

I believe that out of soon coming financial market place crash, a Sovereign, a leader like Herman van Rompuy, as well as a Seignior, an old English word meaning top dog banker who takes a cut, a minister such Olli Rehn, or Jean-Claude Trichet, will arise to establish strong economic governance to deal with sovereign crisis, both in Europe as well as worldwide, as the currency traders sell off the major currencies, DBV, as well as the emerging market currencies, CEW in a global currency war against the world central bankers. The Seignior will establish fiscal sovereignty, unified banking of globally, a common Eurozone Treasury, both credit and fiscal seigniorage, and enforce austerity resulting in internal devaluation.  In the globally integrated financial world, services from companies such as ACI Worldwide, Inc, ACIW, should be in great demand.

V … US Government debt and corporate bonds sold off on today’s strong stock activity  

California Municipal Bonds, CMF, -0.9%

7 to 10 Year US Government Notes, IEF, -0.3%
10 to 20 Year US Government Bonds, TLT,  -0.3
30 Year US Government Bond, EDV,  -0.7
Zeroes, ZROZ, -0.6%

Short Corporate Bonds, LQD, -0.2%
Long Duration Corporate Bonds, BLV, -0.3%

Bonds, BND, -0.1%

VI … The best insurance against debt deflation is to be invested in gold bullion, $GOLD.
The Precious Metal, JJP, rose again today, having broken out of a consolidation triangle on November 30, 2010.

The three white soldiers seen in the chart of the HUI Precious Metals, ^HUI, ETF, GDX,  as well as the junior gold mining shares, GDXJ, communicates an end to investing long opportunities in the gold mining shares.

The chart of the junior gold mining shares, GDXJ, relative to gold, GDX, GDXJ:GLD, suggests that peak value has been achieved in the gold mining shares.

And the chart of the HUI Precious Metals, $HUI, relative to US Government Bonds, $USB, $HUI:$USB, suggests that liquidity funding and risk acceptance for the gold mining shares has reached a zenith, and thus the gold mining stocks, GDX, such as AEM, ANV, ASA, AZK, BVN, GBG, GFI, GOLD, NEM, NGD, NSU, KGN, have peaked out.

Kudos to the many precious metal mining mutual funds which have done well over the last five years such Van Eck Intl Investors Gold C, IIGCX. Investing in the precious metal shares has been a long term “swing trade” and it is now over. Wealth will be better preserved by investing in and taking physical possession of gold, far, far, far away from any brokerage firm.

The chart of gold in terms of currencies, such as gold in terms of the New Zealand Dollar, GLD:FXA, suggests that gold has arisen as the sovereign currency and best storehouse of investment wealth.

VII … In today’s news

Kara Swisher of All Things Digital reports Amazon (AMZN) Poised to Make a Major Strategic Investment in LivingSocial to Counter Groupoogle Threat. With the red-hot acquisition dance between Google and Groupon sucking up all the attention, it’s easy once again to ignore the No. 2 player in the fast-growing social buying space–LivingSocial.

Tyler Durden encourages one to Meet The 35 Foreign Banks That Got Bailed Out By The Fed (And This Is Just The CPFF Banks) Through Quantative Easing I, that is the US Federal Reserve TARP Facility, Ben Bernanke saved the world financial institutions by trading out money good US Treasuries for all kinds of toxic debt and took in distressed debt that trades like the mutual fund FAGIX, which now resides to the extent of over 1.0 Trillion dollars in Excess Reserves at the US Federal Reserve depreciating in value.  Ben Bernanke effected a stunning investment, political, and economic coup, whereby the US lost its sovereignty; and the nation is now part of Global Corporatism, an integrated system of banking, business, and government.     
The Bespoke Group reports Mortgage Rates Jump 10% in 3 Weeks. The chart of Mortgage Backed Bonds, MBB, The recent pullback in fixed income has caused mortgage rates to jump more than 10% in less than a month.  On November 8th, the national average 30-year fixed mortgage rate was at 4.20%.  As of yesterday it had risen to 4.66%.  I comment that the announcement of Quantative Easing 2 has caused interest rates to rise dramatically, demonstrating that the US Treasury and the US Federal Reserve has lost control of US sovereign debt seigniorage to the bond vigilantes.

Cullen Roche in Pragmatic Capitalist writes Small Investors Are Pouring Into Stocks And Bond. Hat Tip to TheAutomaticEarth, Naturally, small investors are chasing the rally.  They were very bearish at the bottom and now remain only mildly bullish after the rally.  At 62.3% the equity allocation is just above its historical average of 60%.  At 21.8% bond allocations are substantially above the average of 15%.


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