Bear Market Commences As Africa And Emerging Markets Plummet And Ford Earnings Stall

Financial market report for January 28, 2011

1) … Introduction
A sell-off In Africa, AFK, -4.5%, Emerging Market Financials, EMFN, -3.2%, Emerging Markets, EEM, -3.1%, and Ford, -13.4, commenced a bear market in world stocks, VT, on January 28, 2011.  

Most stocks have been monetized by the announcement of QE 2, where as gold stocks were decapitalized by the US Federal reserve purchase of debt; but today, with a market shift lower, that changed with gold and gold stocks moving higher; how long the gold stocks will move higher with gold is any one’s guess.  

Dow theory in simplified terms holds that the industrial stocks and transportation stocks make market turns together. The industrial stocks, IYJ,  have now fallen lower in an Elliott Wave 1 Down.  And the transportation stocks, IYT are now caught in an Elliott Wave 3 Down. Once a stock or stocks are subjected to the 3rd Wave, they are carried along to their destruction; there is no intervention or stimulus that can remedy the destined outcome.

An epic investment and economic sea change has occurred: the Emerging Market Small Caps, EWX, are leading the way down in a debt deflationary sel-off at the hands of the FX currency traders, as is seen in the chart of EWX, VSS, and EEM. One of the most successful world small cap investments beginning with the recovery from the financial crisis has been Focus Media Holding Ltd, FMCN, -2.3%, as seen in the chart of FMCN, EWX, and HAO. The chart of FMCN shows that the fall today occurred in the middle of a broadening top pattern that goes back to October 4, 2011: this suggests further falling will now commence.

The ongoing chart of EWX, SCIF, BRF, HAO, LATM, SKOR, and TWON suggests that the India Small Caps, BRF, and the Brazil Small caps are the emerging market losss leaders.

The chart of the Brazil Financials together with Brazil Small Caps, and the India Earnings, and the India Small Caps, suggests that the Brazil Financials, BRAF, are pulling Brazil Small Caps Down; whereas the India Small Caps, SCIF, are pulling the India Earnings, EPI, down …. BRAF, BRF, EPI, and SCIF

Theyenguy says: “All living things are subject to life’s waves; this is the way it has been and always will be; such is the eternal ebb and flow; the essence and experience of life.” Humans are subject to the four seasons of spring, summer, fall and winter. Marine life along the coast is subject to a lunar calendar. The Serengeti is governed by wet and dry.

The last Long Wave ended in 1948 and 1949, we are overdue for a 60 year cycle change. Some say there has been six one thousand year periods and humankind is due for a seventh. Wikipedia relates Amao has the Age of Aquarius commencing in 1948 with the transitional period from the Pisces age to Aquarian age covering the period 1876 to 2020.

The five part Elliott Wave governs investments and economies. The Emerging Market Financials, EMFN, entered an Elliott Wave 3 Down on January 1, 2011, and entered an Elliott Wave 3 of 3 Down on January 28, 2011.  The third wave is the most sweeping and dramatic of all; it is the wave that builds wealth on the way up and destroys wealth on the way down. The world has passed from the age of leverage, economic expansion and prosperity … and into the age of deleveraging, economic contraction and austerity.  With a falling median income level, and a rising 10 year US Government Note Interest Rate, $TNX, real estate sales will become quite rare, many homes will become vacant and many people will rent and not buy homes.    

2) … Charts of significant fallers show today’s strong selling pressure.
Africa, AFK, -4.5. GLG Expert contributor relates that over the past seven decades there has been a pent up frustration in the Arab street that has now, due to a BLACK SWAN event, burst across the Middle East. In a matter of days of Tunisia’s popular revolt, and CONTRARY to most western analysts predictions, Algeria, Egypt, Morocco, Lebanon, Libya, Jordan and Yemen have all had popular demonstrations of varying magnitude. Egypt will be the critical event, should the current regime of Egyptian President Hosni Mubarak collapse (which at the time of writing seems most likely) then a continued cascade event will occur across the Middle East. And Szu Ping Chan of the Telegraph reports Dubai’s stock market plunged by the most in more than a year on Sunday, as Middle East stocks retreated on mounting tensions in Egypt.

Emerging Markets, EEM, entered an Elliott Wave 3 Down on January 28, 2011.   

Internet Retail, HHH, -4.4. The Internet Retail sector is comprised of stocks with terrifically high PEs. Once a market sell off occurred, there had to be a significant loss of value. Note the “almost” three white soldiers in the chart of the Internet stocks in mid January giving a salute to its excellent performance since summer 2010. Astute traders went short the rise Thursday January 28, knowing full well that the white soldiers parabolic rise signaled a market top.   

Consumer Discretionary, IYC, -2.5. Chart shows that a parabolic rise was stopped short by today’s fall. Ford is a significant component of the consumer discretionary sector; its stumble in earnings, turned the entire consumer sector lower.     

Industrial, IYJ, -2.0

Transportation, IYT, -2.8. The chart of the transports shows them to be in an Elliott Wave 3 Decline, where as the Industrials are just now starting theirs. Ryder, R, fell 3.4% today. The smart investor was one who went long International Business Machine, IBM, and short Ryder, R, in early January as investors sought safe haven investment in the industrial stock at a time when other investors were exiting the transportation stock.  

Of note, manufacturing housing, CVCO, fell  5.2%. The life cycle, that is the investment cycle is rapidly depleting investment in manufactured housing.

Of note, not because of its amount of fall, but because of its recent fast run-up in value and place in the electronics industry, is the 2.1% fall in Micron Technology, MU, employer of 25,000 and manufacturer of DRAM.

Also of note is the 8.8% flash storage manufacturer, SanDisk, SNDK,

South Africa, EZA, had experienced a loss of value because of its gold mining production, and because of the loss of value in its currency, the South African Rand, SZR, and now because of its identity with Egypt, and Tunisia.

Chile, ECH, an emerging market leader fell 2.6% and entered into an Elliott Wave 3 of 3 Down.

The Morgan Stanley Cyclical Index, $CYC, -2.8%; the expansion trade, that is the growth trade, ended this week with a close lower at 1056. Ford is a component of the Morgan Stanley Cyclical Index, and its disappointing earnings turned the Index lower.

Small Cap Consumer Discretionary, XLYS, -2.7%; the chart shows that these stocks are in an Elliott Wave 3 of 3 Down as are Airlines, FAA, Note how the fall in Airlines commenced with the formal announcement of Ben Bernanke’2 QE 2. The massive dark cloud candlestick was a dramatic investment statement of buy the rumor of quantative easing and sell the fact of its economic destructiveness. The 3.4% fall in Airlines today draws out the investment principle that the US Federal Reserves’ monetary policies are as toxic as the subprime and CDO lending of the 2007 to 2008 financial crisis and collapse.   

3) … ETFs and stocks falling the most today included the following
Ford, F, -13.4%. Ford reported its results for 2010, its best in more than a decade, but investors were disappointed. It stumbled in the fourth quarter in Europe and reported relatively flat earnings in North America according to Bill Vlasic of The New York Times.   

Turkey, TUR, -7.0. It’s topping out and fall lower, like gold mining stocks, GDX, began with the announcement of QE 2. There has been significant carry trade disinvestment from this country, which is the crossroads between the Eurozone and the Middle East. Turkey has been a economic superstar as is seen in the chart of Indonesia,  Turkey, Thailand, Chile, and the Emerging Markets… TUR, IDX, THD, ECH and EEM, since the recovery from the financial and commodity crisis started in 2009 with Ben Bernanke’s QE 1, which traded out money good US Treasuries and accepted in distressed securities to save US Financial Institutions, XLF. It was the seigniorage and moneyness coming from QE 2 and US Sovereign Debt, particularly, the 30 Year US Government bond, EDV, and the 10 Year US Note, TLT, that seeded the recovery and growth of currencies and stimulated the neoliberal Milton Friedman Free To Choose Economic Regime and the Bank Of Japan ZIRP to grow wealth. The wealth took flight to the emerging market countries and today its extinguishment is well under way as Emerging Market Bonds, EMB, Emerging Market Financials, EMFN, and Emerging Market Currencies, CEW, are being both sold off and sold short. Of note the chart of Emerging Market Bonds, EMB shows extinguishment beginning with the QE 2 Announcement in November 2010, and three black crows, in an Elliott Wave 3 Down that is well under way. The Emerging Market Financials, EMFN, shows a very strong sell today, as does emerging market currencies, CEW. These charts clearly show that the smart investors were those who commenced a short selling investment strategy in early January 2011. The evidence here is clear cogent and convincing that the neoliberal Milton Friedman Free To Choose Economic System passed away in January 2011. And the fall in the optimized carry ETN, ICI, beginning in November 2010, documents that one cannot profit from investing long in stocks with carry trade loans from the Bank Of Japan. The world has entered into a debt deflationary, Ben Bernanke inflation induced, competivive currency devaluation era where bond vigilantes have seized control of the US 30 Year Government Bond Interest Rate, $TYX, the US 10 Year Note Interest Rate, $TNX, as well as world government bond interest rates; and where currency traders are conducting a global currency war with sovereign nation states and their central banks for control of the world’s people and resources. Turkey has a young and educated population whose vigor and talent will not find work in the coming strong economic downturn; a demographic crisis is at hand.  Brian Murphy of the Associated Press relates The Face Of Mideast Unrest Is One Of Youth And Hungry For Jobs: Just days before fleeing Tunisia, the embattled leader went on national television to promise 300,000 new jobs over two years. Egypt’s President Hosni Mubarak did much the same Saturday as riots gripped Cairo and other cities: offering more economic opportunities in a country where half the people live on less than $2 a day. The pledges-under-siege have something else in common: an acknowledgment that the unprecedented anger on Arab streets is at its core a long-brewing rage against decades of economic imbalances that have rewarded the political elite and left many others on the margins. The startling speed — less than two months since the first protests in Tunisia — underscored the wobbly condition of the systems used by some Arab regimes to hold power since the 1980s or earlier. The once formidable mix of economic cronyism and hard-line policing — which authorities sometime claim was needed to fight Islamic hard-liners or possible Israeli spies — now appears under serious strain from societies pushing back against the old matrix. Mubarak and other Arab leaders have only to look to Cairo’s streets: a population of 18 million with about half under 30 years old and no longer content to have a modest civil servant job as their top aspiration. One protester in Cairo waved a hand-drawn copy of his university diploma amid clouds of tear gas and shouted what may best sum up the complexities of the domino-style unrest in a single word: Jobs.         

Business Services: Business Services: True Blue Inc, TBI, -6.7. Labor Ready was one of the favored stocks during the previous US Dollar liquidity rally.

Health Care: Long Term Health Care Facility: Sun Rise Living, SRZ, -5.5. This is a very volatile Russell 2000 company; and investors play it like a fiddle.

India’s stock fall began with a telecommunications scandal. Today’s falls were as follows: India Small Caps, SCIF, -5.2; India, INP, -4.2. India Infrastructure, INXX, -4.5; India Earnings, EPI, – 3.9.

Doug Noland of Prudent Bear reports the following:

January 25 – Bloomberg (Kartik Goyal):  “India’s central bank raised the benchmark interest rate to a two-year high and signaled further increases in borrowing costs as it boosted the country’s inflation forecast. Stocks fell.  Governor Duvvuri Subbarao lifted the repurchase rate to 6.5% from 6.25%.”

January 25 – Financial Times (James Lamont):  “India has responded to persistently high inflation and an economy exceeding its growth forecasts by continuing its aggressive campaign of raising interest rates.   The Reserve Bank of India raised its policy rate by 25 bps. The move takes the repo rate, the rate at which the central bank lends to commercial banks, to 6.5%, its highest since early 2008.”

January 26 – Bloomberg (Kartik Goyal):  “India’s central bank urged the government to cut subsidies that are preventing inflation from easing as Governor Duvvuri Subbarao increased interest rates for the seventh time in a year.  ‘Monetary policy works most efficiently while dealing with an inflationary situation when the fiscal situation is under control,’ Subbarao said.  Finance Minister Mukherjee is scheduled to announce in February the budget for the financial year starting April 1. The minister is aiming to narrow the budget deficit to 5.5% of gross domestic product in the current year ending March 31.”

Business Equipment: Furniture: Steelcase, SCS, -5.3

Consumer Goods: Tableware Manufacturer, Libbey, LIB, -5.2

Hotel, Starwood Hotel, HOT, -4.7

Business Services: United Rentals, URI, -4.5

Africa, AFK, -4.5. Political Turmoil in Europe has dragged down all of Africa.

Internet Retail, HHH, -4.3. Internet Retail saw saw the king of Internet retail Amazon, AMZN, fall 7.2.

Cement, Texas Industries, TXI, -4.2. Dramatic falls in the basic material cement generally come with or precede stock market turns lower.  

Textile Manufacturer, Unifi, UFI,  -4.1

Printed Circuit Board Manufacturer, Flextronics, FLEX, -3.9, Jabil Circuit, JBL, -3.9. The fall in the electronics staple of printed circuit board stocks will ripple through, that is carry through all electronic and technology sectors.   

Synthetic Chemical Manufacturer, Georgia Gulf Corp, GCC,  -3.9

Mortgage Finance Company Istar Financial, SFI,  -3.9

Airlines, FAA, -3.8

Emerging Markets Dividend, DGS, -3.8 and Emerging Market Consumer, ECON, -3.5
Emerging Market Financial, EMFN, -3.4 and Emerging Market Small Caps, EWX, -3.1
Emerging Markets, EEM, -3.1

Mid Cap Value, FVL, -3.5. The dramatic down turn in Midcaps spells doom for all stocks.

South Korea Small Cap  SKOR, -3.5
Korea, EWY, -3.0

Russia, RSX, -3.4

Small Cap Pure Value, RZV, -3.4  and  Small Cap Pure Growth, RZG, -2.3. The combined Yahoo Finance chart of Small Cap Pure Value, RZV, and Small Cap Pure Growth, RZG, illustrates the concept of currency flows move the stock market up and down. At market turns lower, competivive currency deflation depletes money more quickly out of the value shares than the growth shares, as is seen in Yahoo Finance chart of RZV and RZG.  This principle of value depletion can also been seen in the chart of RZV:RZG; the massive lollipop hanging man candlestick coincides with the Elliott Wave 3 Down starting in emerging market currencies, CEW, in January 2011.       

Indonesia, IDX, -3.2 and Thailand, THD, -3.2 have both been experiencing a strong bout of inflation destruction.

Biotechnology, XBI, -3.2; the age of profiting from investing in life sciences and advancements in biotechnology is over.

Mexico, EWW, -3.1; investment in Mexico had risen a wave of carry trade investment that came with its rising currency, the Mexico Peso, FXM.

Small Cap Industrial, XLIS, -3.1. Watts Water Technology, WTS, -3.3,

S&P Clean Energy, ICLN, -3.2 and Nasdaq Clean Energy, QCLN, -3.0. The age of profitable speculation in clean energy technologies is over and done. Chart of ICLN, SPY, and QCLN, shows that the S&P Clean Energy has failed to outperform the S&P and the Nasdaq Clean Energy has totalled failed to perform.

Solar Energy, TAN, -3.0.  GT Solar, SOLR, -2.6. Solar, if if follows its past trading pattern, will be a fast faller.

Copper Manufacturers, COPX, -3.0, Inflation destruction has terminated profitable investing in copper mining companies such as Southern Peru Copper Corp, SCCO.  

Steel, SLX, -2.9 Recycler Metalico, MEA, -4.5, US Steel, X, -4.3. American Railcar Industries, ARII,   Schnitzer Steel, SCHN, -3.1. The US Steel manufacturers are falling faster than their global peers as the recent dollar liquidity trade, that came by Quantative Easing 2, is now over and done, as is seen in the fall of the US Dollar, $USD, falling from its January 12, 2011 value of 80.85 to 78.13 today.

Design Build, PKB, -2.9. Foster Wheeler, FWLT, -3.9

Chemical Manufacturer, Balchem Chemical, BCPC, -3.6, NewMarket, NEU, -3.6

Global Industrial Metal Producer, Horsehead Holding, ZINC, -3.5

Basic Material Manufacturer Brush Engineered Materials, BW, -3.5. There can be no more profitable investing in this company as it has entered an Elliott Wave 3 of 3 Down; that is the most aggressive and destructive part of the sell off wave. Its hasta la vista baby to all funds invested here.   

Environmental service companies selling off heavily included Nalco Holding, NLC, -3.4

Biotechnology, PBE, -2.8.

Copper Miners, COPX, -2.8

Restaurant Improvement Company, Middleby, MIDD, -2.7

Small Cap Consumer Discretionary, XLYS, -2.7

Home Building, ITB, -2.7. Related shares include Masco, MAS, -4.7, Lowes, LOW, -3.8, Home Depot, HD, -3.4, M/I Homes, MHO, -3.3, Lennar Homes, LEN, -2.5, KB Homes, KBH, -2.5. The rally in these stocks had nothing, that is nothing what soever to do with their future earnings capability, but rather their performance was a swing trade much like that of gold mining stocks prior to November 2010, where investors rode a wave. In this case, a wave of disinvestment out of Europe on fears of sovereign crisis. It was a most beneficial wave in stocks that are basically white washed tombs of the prior age of debt driven investment growth.   

Small Cap Revenue, RWJ, -2.7. NewStar Financial, NEWS, -4.3, EZCorp, EZPW, -4.0,  World Acceptance, WRLD, -3.9%, Dollar Financial, DLLR, -2.4

Water, FIW, -2.6,  American Water Works, AWK, Aqua America, WTR,

Taiwan Small Caps, TWON, -2.6%
Taiwan, EWT, -1.9

Small Cap Information Technology, XLKS, -2.5

Insurance Companies, KIE, -2.5. American Equity Investment Life, AEL, -3.0

US Health Care Provider, IHF, -2.5

Semiconductors, XSD, -2.5. Semiconductors falling lower included GSI Technology, GSIT, -6.9, Kulicke and Soffa Industries, KLIC, -5.7, TriQuint Semiconductor, TQNT, -4.4, Skyworks Solutions, SWKS, -4.3, Ceva Inc, CEVA, -4.3, Cypress Semiconductors, CY, -4.0, Entegris, ENTG, -3.9, NVIDIA, NVDA, -2.9, Atmel, ATML, -2.5

Industrial MRO Services: DXP Enterprises, DXPE, -2.5 and UTi Worldwide, UTIW, -2.4

Nanotechnology, PXN, -2.5. Nanotechnology, if it follows its past trading pattern will be a fast faller.

Consumer Discretionary, IYC, -2.5. The automobiles sector is a significant part of consumer discretionary shares. Ford, F, fell 14%. Automobile sector stocks include Johnson Controls, JCI, -4.3, Tenneco Automotive, TEN, -8.7, American Axle, AXL, -8.0, Autoliv, ALV, -4.4, TRW Automotive, TRW, -4.1%. Other significant companies include Royal Caribbean Cruises, RCL, -3.6 and EchoStar Holding, SATS, -2.4

Of note European shares, VGK, -2.6 with Repsol, REP, -1.2, ENI, E, -3.7,and Siemens, SI, -2.4. Italy, EWI, -3.4 and Austria, EWO, -3.4, whose loss of value is due to its precarious carry trade investments through Eastern Europe.

The Emerging Market Small Caps, EWX are now in a strong downdraft. Of note, due a strong Mexico Peso, FXM, the Latin America Small Caps, LATM, have sold off less than the Chinese Small Caps, HAO, the India Small Caps, SCIF,  the Brazil Small Caps, BRF, the Taiwan Small Caps, TWON, and the South Korian Small Caps, SKOR,  

Also of note, China All Caps, YAO, -2.5, China Financials, CHIX, -2.5, China Small Caps, HAO, -2.5, all on China credit and bank tightening as well as on inflation destruction. Katrina Nicholas of Bloomberg reports:  “Inflation in China could hinder Asia’s economic growth and damage the ratings outlook for countries in the region this year, according to Fitch. China’s policy makers are likely to face greater difficulty as the world’s fastest-growing major economy battles ‘hot money inflows’ and consumer prices that rose 4.6% in December after advancing 5.1% in November.”

The strong sell off in Emerging Market Stocks, EEM, on January 28, 2011, was accompanied by a strong sell off both Emerging Market Bonds, EMB, and Emerging Market Currencies, CEW.

The chart of the Emerging Market Currencies Yen Carry Trade, CEW:FXY, communicates that a major unwinding of carry trade investment took place on January 28, 2011; there is every reason to believe this will continue until all value in emerging currencies is destroyed.  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.” The chart shows a fall from a seven month long ascending wedge pattern; such suggests the terminal destruction of the emerging market currencies has now commenced.

The chart of the World Stocks Yen Carry Trade, ACWI:FXY, communicates that the rally in stocks has terminated.  Here we see another terminal pattern. This chart projects that there is coming a catastrophic unwinding of Yen carry trades globally. Investment grew globally on the Yen, now, with the Yen’s downgrade the age of profitable investment is over.

Beginning this year, the financial sector has been a “deleveraging factor” in the emerging market shares as is seen in the Google Finance chart of the Emerging Market Financials, EMFN, the Emerging Markets, EEM, the Brazilian Financials, BRAF, Brazil Small Caps, BRF, -3.3, and Brazil, EWZ …. EEM, EMFN, BRAF, and EWZ. A sell off and short selling of the Emerging Market Financial Shares is undermining investment in the emerging markets.  Doug Noland of Prudent Bear relates the two following Bloomberg reports: First, Andre Soliani: “Brazil’s mid-month inflation rate jumped more than economists expected, increasing pressure on the central bank to quicken the pace of interest rate increases. Consumer prices, as measured by the benchmark IPCA-15 index, rose 0.76% in the month through mid-January, pushing the annual rate to 6.04%.” And secondly, Iuri Dantas and Andre Soliani: “Brazilian credit expansion slowed last month after policy makers raised reserve and capital requirements to prevent a credit bubble and slow inflation.  State and non-state bank lending expanded 1.6% in December to a 1.7 trillion reais ($1 trillion).  Altamir Lopes, head of the bank’s research department, told reporters that credit will grow 15% this year, slower than the 20.5% pace in 2010.”

The 7.2% fall in Amazon, AMZN, is large in amount; and the fall in Amazon came on quickly; but understandably so, as the stock after sell off still has a high PE of 68. The sell of Amazon was induced by the fact that it traded well above its 50 day moving average for quite a long period of time and by the fact that three white soldiers formed on January 13, 14 and 18. The fall in Amazon is significant in that it marks the end of the age of leverage and prosperity that came by the exploit of technology, an abundance of credit liquidity and moneyness flowing into US based stocks from both QE 1 and QE 2. The fall of Amazon marks the transition into the age of deleveraging and austerity.   

The chart of world share relative to world government bonds, VT:BWX, communicates that sovereign debt is no longer leveraging stocks. The chart of world stocks relative to world government bonds, shows that the loss of debt sovereignty and debt seigniorage by the world central banks to the bond vigilantes has turned stocks lower in 2011. This trend of debt deflation will continue to corrupt and destroy investment value in stocks; and will now with gold turning up in value, will recommence an investment demand for gold.   

The chart of world stocks weekly, VT, shows that the seigniorage, that is the moneyness, that came to stocks via QE 2 and the development of the EFSF monetary authority is now over, the global investment bubble has burst and de-risking de-leveraging is underway.

The turn lower in stocks comes at a time when the Asia Tiger is roaring as Stanley James of Bloomberg reports:  “Taiwan’s industrial production increased 18.18% in December from a year earlier, the Ministry of Economic Affairs said.” A falling Taiwan stock market, EWT, will be turning Taiwan economic production and growth quickly lower. The capital intensive Asia Tigers of Taiwan and Korea have garnered more investment gain than the credit intensive Russell 2000, IWO, shares as is seen in the chart of Taiwan Small Caps, TWON, the South Korea Small Caps, SKOR, and the Russell 2000, IWO, … TWON, SKOR, IWO. The Russell 2000 Growth, IWO, which recently experienced a dollar liquidity rally, are now in Elliott Wave 3 Decline, where as the Asian Tigers are now just beginning their decline.

The S&P, SPY Weekly, shows a close lower for a second week. The S&P, SPY, entered into and Elliott Wave 3 Down at the price of 129.99 on Thursday January 27, 2011.

As the stock market turned lower today, Lynn Cowan of Dow Jones reports:  “The amount of money raised through initial public offerings, or IPOs, of stock around the world in January is on track to set a record this year, according to Dealogic. Proceeds from 81 IPOs so far this month stand at $10 billion, the second largest amount on record.”

Utilities, XLU, fell decisively lower with a fall of 1.34% today and 0.94% for the week. Debt laden NextEra Energy, NEE, completed a rounded top this week. Best of Breed, Southern Co, SO, turned lower for the second week. Small Cap Utility, XLUS, turned decisively lower with a fall of 2.2% today. The investment liquidity wave has been so strong that it literally pulled these debt heavy investments up strongly to this week’s zenith.  

Of note world government bonds, BWX, and international corporate bonds, PICB, both traded lower. Junk bonds, JNK, traded lower as well. Once Junk Bonds trade lower for a week, it can be said that the end of credit will have commenced. Kristen Haunss of Bloomberg reports:  “Carlyle Group and KKR & Co. are getting leveraged loans for buyouts at terms similar to those before the credit crisis as investors plow record amounts into funds that buy the debt, driving prices to a three-year high.  The private-equity firms are obtaining so-called covenant lite loans, which lack typical protections for creditors, to back their leveraged buyouts.” Leveraged buyouts, PSP, fell 2.1% today.

Oil, USO, rose on Middle East tensions. Michael Jung writes in Reflection of the Arab World’s Berlin Moment: With some guess work you can see; if the situation isn’t handled well within 2-4 weeks and the phenomenon of protests and instability spreads to other countries in the Arab World with the same intensity we are witnessing in Egypt and originated from Tunisia, then we have the formula for higher oil prices due to the uncertainty and instability of that region

4) Has the US Economy been expanding or contracting?  
I believe that on an employment basis, that is considering just employment, that it has been contracting as Bob Willis of Bloomberg reports: “Payrolls decreased in 35 U.S. states while the unemployment rate rose in 20, showing the labor market recovery is slow to gather momentum.  New York led the nation with 22,800 job cuts last month, followed by Minnesota with 22,400 firings, and Florida with 17,900. Edith Honan of Reuters reports ECRI Leading Economic Growth Gauge Falls to 6-Week Low: the Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 127.5 in the week ended January 21 from 128.9 the previous week. That was the lowest since December 10, 2010, when it stood at 127.2. The index’s annualized growth rate fell to 3.5 percent from 4.1 percent a week earlier. That was the lowest since December 31, 2010, when it was 3.2 percent.

Irvine Renter relates: Home Sales hit 13-year low; unemployment drags on recovery and presents the  3 bedroom and 3 bath home in the Woodbury neighborhood located at 195 Groveland, Irvine, CA, 92620 which is listed for $469,000. The listing agent relates that Woodbury is one of the nations finest communities with seven pools, sport fields, tennis and basketball courts, many parks and award winning schools. Walk to the mall with both national chain stores and boutique shopping. Irvine Renter states: “The housing market cannot recover until the economy does. People without jobs don’t buy houses anymore. With NINJA loans dead, the housing market will not see a new influx of buyers until people get stable incomes. Realistically, even then, it is two years before a new hire qualifies for a loan. Those are the two issues overhanging the housing market. There is (1) a great deal of pent up supply in the form of foreclosures and shadow inventory, and (2) a lack of buyers available to absorb the known supply. The supply and demand imbalance will be problematic until the demand picks up and the supply is absorbed. That will take years, perhaps decades in some markets. If you look at the sales rates and inventories at the high end, the disaster in the making is clear. The banking cartel members are all in agreement that pushing REO through the system right now would be a bad idea because there is not enough volume to make a difference, and the effect on pricing is devastating. However, each of them will have a different opinion as to when the market has turned and it is safe to process their REO. We will not see that phase of the cartel collapse until volume picks up enough that buyers are available for the lenders to fight for.” I say that the home lending cartel is much, much, much stronger in Spain, where the Cajas own a massive amount of shadow inventory, which is far greater than in Ireland or the US, as suggested by Joe Weisenthal Business Insider article showing Home Price Appreciation in Selected Countries

5) Real Estate turned lower today as investors are seen piling into commercial backed mortgage securities.  
Sarah Mulholland of Bloomberg reports:  “Debt investors are wagering that the worst is over for commercial real estate, driving prices on mortgage bonds to the highest in more than two years.  ‘Investors have gotten more comfortable and have started putting money back into CMBS,’ Chris Callahan, head of commercial mortgage backed bond trading at Credit Suisse. ‘It has gone from being the red-headed stepchild to being a viable asset class again.”  Starwood Property Trust, STWD, and DCT Industrial Trust, DCT both turned lower today January 28, 2011.

Real Estate, IYR, manifested a lollipop hanging man candlestick followed by a bearish engulfing finale this week.

6) A new investment age started January 28, 2011, with the sell off in emerging market shares: wealth can now only be preserve by investing in silver and gold; this is especially the case as sovereign debt is seen expanding globally.
The New York Times reports:  “The nation’s budget deficit will widen to nearly $1.5 trillion this year, and the country faces ‘daunting economic and budgetary challenges,’ the nonpartisan Congressional Budget Office said.  The budget office noted that ‘the deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010 are, when measured as a share of gross domestic product, the largest since 1945 representing 10% and 8.9% of the nation’s output.’  Senator Kent Conrad, Democrat of North Dakota and chairman of the Budget Committee, described the new deficit figures as sobering.  ‘CBO’s report should be another wake-up call to the nation,’  Mr. Conrad said:  ‘In the near-term, due to passage of the tax extension package and the slow pace of the economic recovery, CBO is now expecting to see deficits of more than $1 trillion a year continuing through at least 2012. And as disturbing as those near-term deficits are, the long-term outlook is even worse. It is the deteriorating long-term outlook that is the biggest threat to the country’s economic security.’”

And Christine Richard of Bloomberg reports: “Moody’s Investors Service said it may need to place a ‘negative’ outlook on the Aaa rating of U.S. debt sooner than anticipated as the country’s budget deficit widens.  The extension of tax cuts enacted under President George W. Bush, the chance that Congress won’t reduce spending and the outcome of the November elections have increased Moody’s uncertainty over the willingness and ability of the U.S. to reduce its debt. ‘Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising,’ wrote Steven Hess, a senior credit officer.”

The Australian Dollar, FXA, +0.09%, the South African Rand, SZR, -2.01%, the Canadian Dollar, FXC, -0.78%, as well as the Euro, FXE, -0.94%, have been the so called commodity currencies, which drove up the price of Gold, GLD. Yet there came a time when gold started to take on dynamics of a currency; and now with its uptick, it is rising to be the global sovereign currency. The Euro Amalgamation, which has its roots in and even before World War II, is primarily a political and not an economic experience. A new economic order will arise out of the European Sovereign Debt Crisis, and European Bank Debt Crisis. A Chancellor, that is a Sovereign, and a Banker, that is a Seignior, will arise to lead a revived Roman Empire, that is a United State of Europe; these will provide new moneyness to replace the current money good seigniorage that has come from the world bankers who recently huddled at the World Economic Forum in Davos. The Word, Will And Way of the Seignior will provide fiscal federalism, economic governance and most importantly seigniorage in a world where sovereign nations waive their national sovereignty and merge into the ten regions of global governance called for by the Club of Rome in 1974 with Iceland and Irelan`d being prime examples of countries whose leaders have waived their national sovereignty as documented by Michael Jung in his November 28, 2010 article Kicking The Can Down The Road.      

Silver Miners, SIL, and Exploratory Silver Miner Silver Standard Resources, SSRI, rose on rising silver. SLV.

Gold mining shares, GDX, the Junior gold mining shares, GDXJ, rose on rising gold, GLD, rose. Agnico Eagle Mines, AEM, and ASA Limited, ASA, rose on market awareness that a severe sell off is coming to currencies, stocks and bonds and that investors will be rapidly investing in precious metals, JJP.

The chart of gold relative to the Australian dollar, GLD:FXA, suggests that wealth will be best preserved by investing in and taking possession of gold, GLD. In a debt deflationay investment world, gold and silver will be the only safe haven currencies.

7) … In today’s news
Manuel Valdez of the Associated Press in Seattle PI article State steps further into immigration issues reports: The state’s grim financial shape is pushing lawmakers further into the immigration debate, forcing a state historically friendly to immigrants to consider cuts that will impact large segments of legal and illegal immigrants.

The proposed cuts are on top of introduced bills that call for stricter enforcement of immigration law, specifically bills that would force the state to ask for proof of legal residency when obtaining a driver’s license.

Gov. Chris Gregoire’s proposed budget, which sets the pace for the session, cuts more than half a dozen programs that directly aid immigrants – from subsidized naturalization classes to transferring illegal immigrant inmates in state prisons to federal custody.

The two biggest proposals for the next two-year budget, though, are stripping medical coverage to an estimated 27,000 children whose legal status is unclear under the Children’s Health Program for savings of $59 million, and eliminating the State Food Assistance Program, which provides food stamps for legal immigrants, for a savings of $45 million.

“In the last decade or two, Washington has wisely recognized that immigrants are tax paying, working neighbors to all of us,” said Jon Gould, executive director of the Children’s Alliance, an advocacy group. “I’m very worried right now that we are at risk of losing those important public structures that allow our immigrant neighbors to be contributing members of the state.”

It’s the third year in a row that a section of the Children’s Health Program has been proposed for cuts, but it’s the first time that children who may be illegally in the country have been singled out, Gould said.
The Department of Social and Health Services has sent thousands of letters to parents of children in the health program, warning them that the state may no longer cover health care for children who are not legally in the country. It then asks parents to send any immigration-related paper work by the beginning of February that may help their case.

The state food program was created by a bipartisan Legislature in 1997 after Congress, under welfare reform, imposed a five-year bar on legal immigrants from obtaining food stamps. In Washington, the state stepped in and subsidized the program.

After all I have written above, there are countless many financial writers who suggest that Friday’s “dip” is a buying opportunity, one such is David K. Randall, AP Business Writer, who relates History suggests time is right to buy Dow stocks: “It’s not too late to profit from rally as market’s cycle shifts in favor of blue-chip stocks.” The difference between Mr. Randall and myself is that he is paid a salary and I am not.

William Selway of Bloomberg reports:  “Hamtramck, a city of 20,000 largely ringed by Detroit that has asked the state to let it file for bankruptcy protection, doesn’t have enough spare cash to repave a single street, according to Mayor Karen Majewski.  Money for payrolls will run out in March in the Michigan municipality where General Motors Co. builds Chevrolet’s Volt. ‘There is no money for fixing anything,’ Majewski said.  ‘Finding money to fix roads, it’s just an impossibility.

Jim Efstathiou Jr of Bloomberg reports Democratic Senator Who Shot Cap-and-Trade Bill in Ad Named to Energy Panel. The Senate committee with primary jurisdiction for U.S. energy policy added Joe Manchin, the former West Virginia governor who won office after using climate-change legislation for target practice in a 2010 ad. Manchin will join the Senate Energy and Natural Resources Committee, according to an e-mail yesterday from Bill Wicker, a committee spokesman. The panel, led by Senator Jeff Bingaman of New Mexico, plans to draft legislation that sets guidelines for how much electricity comes from sources such as coal, natural gas, wind and sun. West Virginia is the second-biggest coal-producing state after Wyoming, according to Energy Department data. In his commercial, Manchin loads a rifle and fires a single bullet into a copy of the cap-and-trade bill backed by President Barack Obama that would penalize utilities for using coal. Joe Manchin represents West Virginia, the second-biggest coal-producing state. (Hat Tip Gary of Between The Hedges)

Michael Patterson and Weiyi Li of Bloomberg report Emerging Equity Funds Have Biggest Outflow Since 2008. Emerging-market equity mutual funds had their biggest weekly outflows since mid-2008 as investors speculated rising interest rates will curb economic growth, according to Citigroup Inc. The funds lost $3 billion during the week ended Jan. 26, Citigroup’s Hong Kong-based strategist Markus Rosgen wrote in a report today, citing data compiled by research firm EPFR Global. The outflows amounted to 0.4 percent of the funds’ assets, the most since May, Rosgen wrote. Investors are paring bets on shares in the fastest-growing economies after pouring more than $90 billion into emerging- market stock funds last year, the biggest-ever annual inflows, according to EPFR data.

Latin Dispatch reports Chile is launching its first investigation into the death of President Salvador Allende thirty-seven years after the socialist leader was found shot in the head during a U.S.-backed coup. Until now, his death had been ruled a suicide. (Hat Tip to EconomicPolicy Journal)

EuroIntelligence reports that Eurostat rules that member states must account for EFSF debt as gross debt in the national accounts. Willem Buiter told Der Standard that the EFSF only postpones the inevitable: sovereign default beckons

Yahoo Real Estate relates that Venessa Wong of Bloomberg Businessweek reports Sagaponack, NY, is ranked #1 on Americas Richest Small Towns. The Belle Meade Neighborhood in Nashville, TN has been added to the list.

Keywords: competitive currency devaluation, competitive currency devaluation, debt deflation, Morgan Stanley Cyclical Index, the seignior, seigniorage, sovereignty, national sovereignty, Age of Deleveraging, Monetization of Debt, Debt Monetization, inflation destruction.


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