Gold Remains Stable As Banks Lead Stocks Lower As Manufacturing Slowdown Adds To Fears That Quantitative Easing Is Faltering on Inflation Destruction.

Financial Market Report For June 1 1. 2011

1) … World stocks, VT, and ACWI, fell lower
The Dow, DIA, and S&P 500, SPY, shedding more than 2% after the Manufacturing ISM survey showed a sharp slowdown in U.S. manufacturing activity in May, adding to fears that quantitative easing is faltering on rising inflation. The chart of the Dow, DIA, S&P, SPY and the Nasdaq 100, QTEC, all show that these indices are now in an Elliott Wave 3 Down.

Tyler Durden reports Manufacturing ISM At Lowest Since September 2009

Tom Krisher and Dee-Ann Durbin, of the Associated Press report GM sales fall as deals and fleet sales decline

Banks, KRE, -3.7 and Financials, XLF, -3.4 and Real Estate IYR, -2.8, led the markets down.

Mortgage lenders such as Regions Financial, RF, were major loss leader on the day; as was Savings And Loan: Hudson City Bancorp, HCBK. Investment Banking and Capital Market Providers KCE, such as  Morgan Stanley, MS, fell strongly as did Credit Provider American Express, AXP. Asset Management Companies, such as Principal Financial Group, PFG, and Stock Brokers such as  T. Rowe Price, TROW, fell hard.

Irvine Renter relates Case-Shiller confirms bear rally of 2009 is dead, housing bust continues.

The US Small Caps, heavily dependent upon credit and lending, the Russell 2000, IWM, fell 3.2% following the banks lower

Other sectors falling lower included
GEX, -3.1
XSD, -3.3
EUFN, -2.4
PSCE, -3.4
ITB, -3.0
XLB, -3.1
COPX, -2.8
XLI, -3.3
PSCI, -2.8
IYM, -3.0
XHB, -3.4
WOOD, -2.8
XME, -3.5
SLX, -2.7
Small Cap Industrial PSCI, -2.8
Networking, IGN, -3.6
Water Stocks, FIW, -3.1
Retail , XRT, -3.0
Basic Materials, IYM, -3.0
Home Builders, ITB, -3.0
Silver Miners, SIL 3.0
Transports, IYT, -3.3
Industrials, XLI, -3.3
Industrials, IYJ, -3.0
Basic Materials, XLB, -3.0
Small Cap Consumer Discretionary, PSCD, -3.0
Manufactured Housing, CVCO,  fell 4.7%

Dow Theory confirms a bear market is underway as both transports  IYT, -3.3 and Industrials, IYJ, -3.0 fell lower together, each entering an Elliott Wave 3 Down.

Countries falling lower included
EPU, -5.1; Peru joined Vietnam, VNM, and EGPT, in falling lower due to a failure of government.
NORW, -3.0
HAO, -2.0
THD, -3.0
EWU, -2.7 on a lower British Pound Sterling.
VGK, -2.8
EWI, -2.7
EWP, -3.0
EWA, -2.3 as Bloomberg reports Australia GDP Falls Most Since 1991. Australia’s economy shrank in the first quarter by the most in 20 years as floods hurt exports, even as stronger business investment underscored the central bank’s forecast for a rebound in the second half of the year. Gross domestic product fell 1.2 percent from the previous three months, when it rose a revised 0.8 percent, the Bureau of Statistics said in Sydney today. Exports slumped 8.7 percent, subtracting 2.1 percentage points from GDP growth, today’s report showed, while machinery and equipment spending jumped 6 percent, adding 0.4 point.

CNBC reports China May Official PMI Hits 9-Month Low on Credit Curbs.

The Morgan Stanley Cyclicals Index, $CYC, entered an Elliott Wave 3 Down.

Gold doesn’t ride oil’s coat tail anymore. Gold, GLD. is the world’s sovereign currency and investment; it traded basically unchanged as Oil, USO, DBC, and BNO, base metals, DBB, and agricultural commodities, JJA, fell lower turning commodities, DJP, lower.

2) … FactorShares 2X Gold/ Short S&P, FSG, is in an Elliott Wave 3 Up.

3) … Open Europe relates Frankfurter Allgemeine says it was almost assured that the IMF will not pay the fifth tranche for Greece
 
I conclude that EU has three alternatives: bankruptcy of Greece, the use of the EFSM as a stop gap; or a new seigniorage aid program.
 
“FAZ reports that the IMF will almost certainly not pay out its share of the next instalment of aid from the Greek bail-out, as the EU/ECB/IMF are expected to conclude that Greece cannot fund itself over the next year, meaning that it would be against the IMF’s rules to pay out the next tranche of aid. This means that Greece will need a second bail-out or face a default, with the article estimating that the fresh rescue package would need to be between €60bn and €70bn. A third option, reports the article, would involve the EU covering the IMF’s share of the funds, through the European Financial Stabilisation Mechanism (EFSM), until a new adjustment programme can be agreed. A statement by German Finance Minister Wolfgang Schäuble notes that the conditions attached to the first bail-out “have not been fulfilled”, suggesting that the IMF will not pay out the money.”

“However, in conflicting reports, Kathimerini notes that Athens is heading for an overall agreement with the EU/IMF/ECB officials on the next instalment of aid and a medium-term plan. Reuters reports that the EU/IMF/ECB have agreed to let the Greek government propose a VAT reduction from 23% to 20% in an attempt to gain political consensus on the new austerity package, but the main opposition party New Democracy is still requesting further tax decreases”

Chart of the Euro, FXE.

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