Exhaustion Of QE 2 Continues Forcing Emerging Markets And Now Taiwan And South Korea Stocks Lower … The European Sovereign Debt Crisis Recommences With Rising Portugal Interest Rates … And Spain May Have To Nationalize The Cajas

Financial market report for Thursday February 10, 2011

1) … Exhaustion of quantitative easing caused Emerging Markets and now Taiwan shares to trade lower.  The European shares fell lower as the European sovereign debt and banking debt crisis resurfaces on higher Portugal interest rates. Spain may have to nationalize the cajas.

1A) Major world currencies and emerging market currencies fell lower today causing the US Dollar to rise.
The major world currencies, DBV, double topped out on the announcement of QE 2 and also on February 8, 2010. These fell lower today.  

Emerging market currencies, CEW, made an Elliott Wave 5 high on the announcement of QE 2, and then commenced an Elliott wave 3 Down in early January; and then started an Elliott Wave 3of 3 down on February 9, 2001. These fell lower today.

Currency deflation is more aggressively underway in the emerging markets than in the developed nations.

Today the emerging market stocks, EEM, fell strongly again; they fell a significant 0.9% lower; which was accompanied by a 0.4% fall in emerging market currencies CEW.  Both stock deflation and currency deflation, is underway; these have come as a result of the exhaustion of quantitative easing.

First there was a fall in Emerging Market Bonds, EMB, then there was a fall in emerging market stocks, EEM, then there was a fall in emerging market currencies, CEW. All of which, was preceded by a fall in the US Treasuries. The falling wave structure in Emerging Market Bonds, EMB, is like the falling wave structure in the 7 to 10 Year US Treasuries, IEF. Emerging markets have lost lost debt sovereignty, that is their debt seigniorage, in sympathy with the United States losing its debt sovereignty and its debt seigniorage, that came first with the suggestion of QE 2 at Jackson Hole, and then the actual announcement of QE 2, in early November 2010, which is evidence by a fall in the 30 Year US Government Bonds, EDV, and a fall in the 10 Year US Government Notes, TLT. The Emerging Market Stocks, EEM, entered an Elliott 3 Down in late January and an Elliott Wave 3 of 3 Down in early February on exhaustion of quantative easing.

The derisking and the deleveraging out of the 30 Year US Government Bonds, EDV, and the 10 Year US Government Note, TLT, is seen in the fall of the 30 10 Leverage Curve, $TYX:$TNX, which is the inverse of the 30 10 Yield Curve.

The flattening seen in 30 10 Leverage Curve brought disinvestment out of gold mining stocks, GDX, as these disconnected from the price of gold as is seen in the chart of the gold mining shares relative to gold, GDX:GLD.  The gold mining stocks, GDX, and the airline stocks, FAA, were the first to experience exhaustion of quantitative easing. Then came the exhaustion of the emerging market stocks, EEM, and then today February 10, 2011, the exhaustion of the Asia Tigers, that being Taiwan, EWT, and South Korea, EWY.

The Flattner ETN, FLAT, serves as a proxy for the exhaustion of quantitative easing, and the ongoing Yahoo Finance chart of  GDX, FLAT and FAA and EEM, communicates the loss of investment value that has come, with first, the suggestion of QE 2, and then its actual announcement in early November 2010. The suggestion of printing of money to purchase US Government debt started to monetize debt; and then the actual announcement of QE 2, commenced monetization of debt globally. Deleveraging and disinvestment out of stocks followed.

Exhaustion of quantitative easing caused the world to enter into into the Age of Deleveraging on February 9, 2010, with world stocks, and Junk Bonds falling lower in value. World stocks, VT, fell from a rally high of 49.80 to 49.21 and Junk Bonds, JNK, fell from a rally high of 40.63 to 40.34. The investment bubble that began in the late 1940s has been pricked. The neoliberal Milton Friedman Free To Choose floating currency regime is history. With the fall lower of Junk Bonds, JNK, the end of credit as we have known it has commenced.            

The great swing trade of the decade was investment in the gold mining stocks, GDX, and the Junior Gold mining stocks, GDXJ, and the exploratory silver miner, Silver Standard Resources Inc, SSRI. The awesome rise in gold mining stocks came on the expansion of sovereign debt seigniorage and the expansion of US Treasury debt. In as much as US Sovereign debt seigniorage, emerging market sovereign debt seigniorage, and world government bond sovereign debt seigniorage, has failed, gold mining stocks can no longer swing awesomely like they have in the past. The new swing trade will be precious metal futures, JJP,  and investment in gold, GLD. I recommend that one invest in and take physical possession of gold.      

The world is passing from The Age of Leverage, characterised by sovereign sovereign debt expansion, currency inflation, credit liquidity, stability, stock and junk bond inflation, economic growth and expansion and prosperity  …  and passing into The Age of Deleveraging, characterised by failure of sovereign debt, currency deflation, credit ill-liquidity, instability, stock and junk bond deflation, economic contraction and austerity.

Anticipation of and the actual implementation of Ben Bernakes’s QE2 provided seigniorage, that is moneyness, to both world stocks, VT, and junk bonds, JNK, worldwide as is seen in the chart of each.

But now with the end of earning seasons, QE 2 has exhausted, with both world stocks and junk bond turning lower in value. Increasing good earnings can no longer support stocks, as sovereign debt seigniorage has failed. Over time it will become apparent that the only “money good” comes from investing in and taking possession of physical gold and silver.

Charts show a great divergence between world shares, VT, and European Shares, VGK, and the US Shares, VTI, and associated indices such as the Russell 2000, IWM, the Dow, DIA, the New York Composite, NYC, the Nasdaq 100, QTEC, and the S&P, SPY. The world shares weekly, ACWI, have entered into an Elliott Wave 3 Down where as the US shares, VTI, have not done so as of yet. World stocks, ACWI, fell from an Elliott Wave 2 up on February 7, 2010 at price of 48.43 and closed on February 10, 2010 at 48.23. Chart of World Stocks, ACWI, provided for one’s review.

On February, 1, 2010, exhaustion of QE 2 brought moneyness to Gold, GLD, as it started to rally once again, as investors saw a market turn lower at hand and bought the hard metal asset as a safe haven investment. This will be all the more the case, once more and more currencies, world stocks, VT,  junk bonds, JNK, sovereign debt, BWX, and international corporate bonds, PICB, fall lower and lower.

The ongoing Yahoo Finance chart of 10 Year US Government Note, TLT, the Flattner ETF, FLAT, the gold mining stocks, GDX, and gold, GLD, …. TLT, FLAT, GDX, and GLD,  documents the exhaustion of QE 2 coming to gold mining stocks. Exhaustion of quantitative easing, has deleveraged the gold mining stocks, between the announcement of QE 2, and up until the first of February, at which time they started to rally some; the rally of the gold mining stocks will be short lived as they will be falling lower with stocks.    

1B) Other currencies fell today as follows.
Swiss Franc, FXF, -1.3% … Switzerland, EWL, -1.2 fell significantly
South Africa Rand, SZR, -1.2% … South Africa, EZA, -0.4
Japanese Yen, FXY, -1.2% … Japan, EWJ, -0.1%
New Zealand Dollar, BNZ, -1.2% … New Zealand, ENZL, -1.5%  fell very significantly
Euro, FXE, -1.0%, … Europe, VGK, -1.5  …  fell significantly
Swedish Krona, FXS, -0.8% … Sweden, EWD, -1.0 … fell significantly
Australian Dollar, FXA, -0.7% …. Australia, EWA , -0.4% significantly
India Rupe, ICN, -0.4%  …. India, INP, -1.0% … fell significantly
Mexico Peso, FXM, -0.4% … Mexico, EWW, -1.0% … fell significantly. The chart of Mexico shares, EWW, shows this to be a broken investment. Its fall has come more on exhaustion of QE 2 than on the fall in its currency.   

……… China, YAO,   -0.6% … fell significantly

Dow, DIA, fell 0.1%. The Dow did not trade significantly lower, as it fell lower in the morning, but clawed its way back up, as there was not strong selling pressure as is communicated by th hollow red candle.

The Euro, FXE, fell 1.0% in an Elliott Wave 3 of 3 Down today February 10, 2011

The Yen, FXY, fell 1.1% today February 10, 2011.

The Euro Yen Carry Trade, the EUR/JPY charted as FXE:FXY rose today February 10, 2011.

Emerging Markets, EEM, fell a fairly strong 0.9%

Gold, GLD, fell a small 0.2%

The US Dollar, $USD, rose a strong 0.76%  

Applied Material, AMAT, rose 1.5% making it short sellable.

Semiconductors, XSD, rose 0.2% on the stronger US Dollar manifesting due to the emergence of The Apple Ecosystem.  

1C)  Deleveraging and disinvestment was widespread today in a number of stocks and commodities, while a strong dollar boosted the US Shares.
It was a decisively bearish day for Active Power, ACPW falling 3%.

And it was likewise a decisively bearish day for the commodity natural gas, as UNG, and GAZ, both fell to their early November trading values; note from the charts the different paths that each took; will these bounce higher? For that its best to ask some one trades this commodity.

Taiwan, EWT, had a gap open lower plummeting 2.0% today on the exhaustion of QE 2. Its gap open lower ,and amount of fall lower, suggests a powerful down wave is now commencing in the Taiwan shares.

Taiwan Semiconductor, TSM attained an Elliott Wave 5 up on January 14, 2010. Note today’s three black crows with 1.9% fall to its 50 day moving average. TSM’s high was obtained way ahead of the Semiconductor ETF, XSD, which came in just a few days ago on February 7, 2010. The reason why TSMs high came in sooner, and the fall is so dramatic, is that the money flows from QE were hotter, much hotter.

That is Quantitative Easing money flows were more inflationary in Asia. The regions has the name Asia Tiger for a reason. Taiwan Small Caps, TWON, fell 0.9%. I find it surprising that the Taiwan Small Caps are experiencing less fast loss of value than Taiwan. The Taiwan Small Caps are making a rounded top and falling lower, while Taiwan, are falling sharply lower; this can be seen in the Yahoo Finance Chart of TWON and ETW.        

The countries that saw hot money flows and inflation that came with QE 2, are now seeing a fast loss of value that comes with an exhaustion of QE 2.   

South Korea, EWY, fell 2.3% and South Korea Small Caps, SKOR, fell 1.5%. The South Korea experience is much like that of Taiwan.

Now South Korea, EWY, and a little more significantly Taiwan, EWT, are starting to experience what the  emerging market countries, have experienced, that being the exhaustion of Quantitative Easing. These two technology leaders, the electronics leader South Korea, and the semiconductor leader Taiwan, are participating in the Quantitative Easing exhaustion that Turkey, TUR, and Indonesia, IDX, and Peru, EPU, have experienced. All got the QE 2 cool aid. They all got juiced up; now they are all experiencing the QE 2 exhaustion quakes and quivers. Thailand, THD, and Indonesia, IDX, fell strongly, 1.6%.

TriQuint Semiconductor, TQNT, suffered a major breakdown on February 10, 2010, presenting an awesome opportunity to go short at the end of the day at 13.01, which is near the prior day’s close of 13.66.   

The 1.1% rise in Kulicke and Soffa Industries, KLIC, boosted it enough to short sell it. This manufacturer of semiconductor equipment will fall faster than the semiconductor companies.  

Emerging market small caps, EWX, fell 0.9%; the wave structure is quite bearish here causing a lot of stock loss of value.

All World Small Cap Stocks, Excluding The US, VSS, fell 1.1%; into a region of support above breakdown.

World Real Estate, Excluding US, WPS, fell 0.9% lower again today; the sell off has commenced in these shares.

Traders bought the Transports today, IYJ, rising 1.6%; and my favorite short sellable stock in this group is  Genesee and Wyoming Railroad, GWR, rising 0.6%. The upward pressure here appears strong and there could be follow through tomorrow   

The rise in Post Properties, PPS, helped Real Estate, IYR, move to a new high.

The Morgan Stanley Cyclicals Index, $CYC, building systems component, United Technologies, UTX, moved parabolically higher manifesting an evening star. This rise does not mean that one should go long this stock or that the Cyclical Stocks, that is the economic growth stocks, have more to run. Rather we are witnessing a grand finale to stock value growth, that came from the Ben Bernanke Quantitative Easing I and II cool aid. Much can be said of many other Morgan Stanley Cyclical Index stocks such as chemical manufacturers Dupont, DD, and PPG Industries PPG  as well as Goodyear Tire, GT and Industrial company Eaton, ETN. The traders ran up Automobile Component Johnson Controls, JCI, today. Note the contrast between the former companies, and Johnson Controls which is cresting up into an Elliott Wave 2 Up.

The kind of driving force witnessed here at the end of the US Dollar Liquidity Trade and EFSF Rally reminds me of the driving force that existed over many years in Silver Standard Resources Inc, SSRI. The difference is that these index stocks are run up largely by dollar resources, where as SSRI was run up by yen carry trade investing. The Morgan Stanley Cyclical Index moved to a new rally high of 1112.

EMC Corp, EMC, and Network Appliance, NTAP, took Network stocks, IGN, higher; these have not participated in the Age of Deleveraging yet; they will soon do so.

Dynamic media, PBS, continued to soar today; as did consumer stocks, IYC.

The US Shares, VTI, rose on the stronger US Dollar, $USD. Small cap revenue shares, RWJ, like Morningstar, MORN, Industrial stocks like Deere, DE, and Franklin Electric, FELE, small cap energy shares, XLES, like, Clayton Williams Energy, CWEI, Design and Build companies, PKB, like, Fluor, FLR, and Automobile Stocks, like Tenneco, TEN, to rise.  

The Euro, FXE, fell 1.0% lower in an Elliott Wave 3 of 3 Down to close at 135.43. European Financials, EUFN, fell 2.1%, with Banco Santander, STD, falling 3.2%.

Switzerland Bank, Credit Suisse, CS, fell 7.2%, and Switzerland, EWL, on a falling Swiss Franc, FXF. The chart action seen in these looks much more bearish than in the Euro Financials, EUFN, and European Shares, VGK, and the Euro, FXE. The currency traders are having success pushing the Swiss Franc Euro Carry Trade, FXF:FXE, down towards its 200 day moving average.

I have to wonder how people in Indonesia feel about Ben Bernanke, now that QE 2 has inflated their food costs, FUD, and deflated their stocks,  IDX.   

4) …In today’s news
A) Bloomberg reports Portugal leads rise in European sovereign credit-default swaps

B) EuroIntelligence reports panic was triggered by a decision of some large investors to sell their Portuguese bond holdings. EuroIntelligence communicates that FINALLY the European Sovereign Debt and Bank Debt crisis is coming to a head, to use their worlds, “a really fine mess” relating:
ECB is forced to intervene in the Portuguese sovereign bond market;
Negotiations for a revamp of the EFSF have stalled;
Panic was triggered by a decision of some large investors to sell their Portuguese bond holdings;
Weber will not take part in Franco-German summit, as Schäuble refuses to sit with him on the same table;
Merkel is scheduled to meet with Weber today to discuss an early, possibly imminent exit;
FT Deutschland has an article casting a critical light on Weber’s term at the Bundesbank;
there is no clarity about what happened: did Merkel let Weber down? Or was the other way round?
Political observers in Berlin believe that the decision will harden Merkel’s negotiating position over the comprehensive crisis resolution package;
Greece and Italy oppose numerical debt reduction targets;
Italian central banks call on commercial banks to reduce assets;
Brian Lenihan postpones next round of banking sector recapitalisation due to elections;
EU and IMF voice concern that Irish banks need more capital than envisaged;
Eric Le Boucher, meanwhile, says Franco-German dictat may be a problem for some, but it is the lesser evil. (I add that for months I have been writing that a European Chancellor and a European Banker, will arise to power and announce a Framework Agreement to establish European Economic Governance, as well as to provide credit and a fiscal seigniorage, credit and moneyness)

C) Darren Murph of End Gadget reports the core of Rovi Connected Platform is advanced home networking capabilities that will allow CE manufacturers to quickly and easily deploy interoperable device functionality to their Android based mobile device, phone and tablet product … connected devices around their home right from their personal Android device, and stream their personal, premium and recorded content stored on their PC or NAS devices directly to the Android mobile device in the palm of their hands.

C) …Gary of Between The Hedges reports the following items
Ambrose Evans Pritchard reports Spain orders drastic caja clean-up to win confidence and fight off EMU debt contagion. Spain has imposed draconian rules on its saving banks and is preparing for part-nationalisation of the industry to restore confidence and boost the country’s defences against contagion from the debt crisis in Portugal.

Business Insider reports Vietnam Massively Devalues The Dong To Save Its Ailing Economy.

Business Insider reports Shocker: South Korea Holds Rates Steady, As Even They’re Worried About Stagflation. It’s not just Vietnam that doesn’t want its currency to strengthen. South Korea has unexpectedly put the breaks on its tightening campaign.

Bloomberg reports Cotton Surges to Record for Second Day on U.S. Export Sales. Cotton , BAL, futures climbed to a record for the second straight day after exports jumped from U.S., the world’s leading shipper. In the week ended Feb. 3, export sales rose 26 percent from a week earlier, the U.S. Department of Agriculture said today. Global output will be 115.25 million bales in the year ending July 31, down 0.2 percent from a January forecast, with demand at 116.55 million, the USDA said yesterday. Prices have more than doubled in the past 12 months. Cotton for March delivery advanced 6.76 cents, or 3.7 percent, to $1.8734 a pound at 10:12 a.m. on ICE Futures U.S. in New York. Earlier, the most-active contract jumped by the exchange limit of 7 cents to an all-time high of $1.8758. The price gained 7.6 percent in the previous three days.

Bloomberg reports Corn Jumps to 30-Month High on Export Demand. Corn, CORN, rose to a 30-month high for a second day on signs that global demand is increasing for supplies from the U.S., the world’s largest grower and exporter. The U.S. Department of Agriculture reported export sales in the week ended Feb. 3 were 51 percent above the average during the prior four weeks. The USDA said yesterday that U.S. inventories before the harvest will be equal to about 18 days of consumption, on par with the record low in 1996. Before today, prices jumped 95 percent in the past year. Corn futures for March delivery rose 5 cents, or 0.7 percent, to $7.03 a bushel at 10:51 a.m. on the Chicago Board of Trade, after reaching $7.045, the highest price for the most- active contract since July 2008.

Bloomberg reports Wheat Hoarding Likely to be ‘Widespread,’ Prompting Price Gains, UN Says. Global wheat harvests, GRU, may trail demand for a second year, spurring hoarding and further price gains, said the United Nations. “Whenever you get the market as tight as we are now, hoarding becomes widespread,” Abdolreza Abbassian, a senior economist at the UN Food and Agriculture Organization, said in an interview by phone from Rome. Wheat in Chicago, the global benchmark, soared 72 percent in the past year as drought and floods ruined crops.

Age of Deleveraging, The Sovereign, The Seignior, 30 10 Leverage Curve, Deleveraging, Exhaustion of Quantitative Easing, Morgan Stanley Cyclical Index, Apple Ecosystem, Euro Yen Carry Trade, EUR/JPY, Swiss Franc Euro Carry Trade, European Sovereign Debt Crisis, Dollar Liquidity Trade,m


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