Financial Market Report for August 4, 2011
1) … Investors panicked and fled to the exits when they became aware that a Default Union has formed in Europe with the imminent default of Italy in addition to Greece.
World Stocks, ACWI, World Small Cap Stocks, VSS, Emerging Markets, EEM, the BRICS, EEB, fell sharply, resuming their fall as traders become aware that Italy is going to default. The stock market suffered its worst day Thursday since the financial crisis in the fall of 2008. The Dow Jones industrial Average, DIA, fell more than 500 points.
Financial Times reports ECB Sees Lenders Rush to Hoard Cash as the European Stocks and the European Financials collapsed. with shares falling as follows:
Europe, VGK, -7.5%
European Financials, EUFN, -7.5%
Spain, EWP, -7.9%
Germany, EWG, -8.0%
Italy, EWI, -8.4%
France, EWQ, -8.1%
The NYT reports Large Banks in Europe Struggle With Weak Bonds. “Ever since the European debt crisis began, the risk of contagion of problems spreading from smaller countries to bigger ones, like Italy and Spain has worried government officials and investors. Now, another type of contagion is causing concern: the risk of problems spreading to big banks, especially in Italy and Spain. The growing vulnerability of the giant banks in these two countries is spurring investor fears that Europe’s latest bid to get a handle on its festering debt crisis, adopted just a few weeks ago, has come up short.” And Open Europe reports FT Deutschland FTD FTD 2 Welt reports that Germany and France are jointly pushing for Herman Van Rompuy to have the official title of ‘President of the Eurozone’, arguing that giving the euro a common voice would improve working methods and crisis management. The articles notes that several governments see this as an “attack” against Eurogroup President Jean-Claude Juncker.
Yesterday, the NYT reported Berlusconi Vows Not to Resign and Says Italy Will Recover, The Prime Minister addressed Parliament saying the economy is economically and financially sound.” Doublespeak is a defining characteristic of despots and Neoauthoritarianism.
Stock falling more than six percent included the following:
Biotechnology, XBI, and IBB,
Copper Miners, COPX,
Metal Manufacturing, XME,
Energy Service, OIH, and IEZ,
Junior Gold Mining, GDXJ, Gold MIning, GDX, and Silver Miners, SIL,
Alternative Energy, GEX,
Hard Asset Producers, HAP,
Uranium Mining, URA,
Energy Producers, XLE,
Wood and Paper Manufacturers, WOOD,
Aluminum Producers, ALUM,
Mid Cap Growth, JKH,
Small Cap Energy, PSCE,
Small Cap Consumer Discretionary, PSCD,
Alternative Energy, GEX,
Design and Build, FLM
Leveraged Buyouts, PSP,
Russell 2000, IWM
2) … Commodities, DJP, Timber, CUT, Base Metals, DBB, Oil, USO, Petroleum Products, DBC, Brent Oil, BNO, fell lower again on the multitude of grim US and European news.
3) … Peak Credit is being achieved as the chart of Bonds, BND, manifested a spiking candlestick, following yesterday’s gravestone doji, at the top of an ascending wedge which shows three white soldiers. The same structure is seen in the chart of 300 % of the 20 Year US Treasury ETF, TMF. Other evidence of Peak Credit comes from the Flattner ETF, FLAT, rising parabolically,.on a flattening of the yield curves, such as the 10 30 US Treasury Curve, $TNX:$TYX.
The 30 10 US Sovereign Debt Leverage Curve, $TYX:$TNX, is definitely peaking out. Peak debt leverage is occurring, as the Interest Rate On The Benchmark US 10 Year Note, $TNX, is now below 2.6%, in what is a likely an Elliott Wave 2 Down, ready to spring up into a fatally destructive Elliott Wave 3 Up, as in fatally destructive to the world’s financial system.
Peak Credit is seen in the ratio of BLV relative to LQD, BLV:LQD, topping out.just as it did when QE2 was announced at Jackson Hole in August 2010 by Ben Bernanke. Both the long duration corporation bonds, BLV, and the corporate bonds, LQD, are clearly topping. These were driven higher by a strong rise in the Zeroes, ZROZ, the 30 Year Treasuries, EDV, and the 10 Year US Government Bonds, TLT, on a short squeeze. Soon the bond vigilantes will be driving US debt lower as they call soveign debt interest rates higher globally. The chart Municipal Bonds, MUB, Mortgage Backed Bonds, MBB, suggests these are topping out..
World Government bonds, BWX, fell lower and International Corporate Bonds, PICB, traded lower today, on falling world currencies, DBV. Debt deflation, that is currency deflation, came to sovereign debt on falling stocks as the seigniorage, that is the moneyness of neolilberalism has failed on demand destruction, inflation destruction and quantitative easing exhaustion.
Junk Bonds, JNK, fell lower with stocks loosing six months of value.
Emerging Market Bonds, EMB. retained their strength despite falling emering market currencies, CEW.
4) … The selling of the world’s currencies commenced competitive currency devaluation.
The Free To Choose Milton Friedman currency regime known as neoliberalism died, as the world’s major currencies, DBV, the commodity currencies, CCX, the emerging market currencies, CEW, with the exception of the Swiss Franc, FXF, all sank, and the US Dollar, $USD, rose to 75.12.
Shamim Adam of Bloomberg reports “The Swiss National Bank cut interest rates to rein in the franc after a gain of about 36 percent in the past 12 months.The Bank of Japan today expanded an asset-purchase fund that includes government bonds, real-estate investment trusts and corporate debt to 15 trillion yen from 10 trillion yen. It also boosted a program aimed at encouraging banks to lend by 5 trillion yen, bringing it to 35 trillion yen.” … Yet history shows such efforts are worthless, and the current actions are “behind the curve” as falling stock prices began competitive currency deflation, competitive currency devaluation today… The Bloomberg report continues “In New Zealand, Finance Minister Bill English said today that the government can do little to alter the currency’s course after it rose to 88.43 U.S. cents on Aug. 1, the most since exchange-rate controls were removed in 1985. New Zealand’s central bank doesn’t comment on currency intervention, spokesman Mike Hannah said “
Today will be known as Black Thursday, as country stocks manifested strong debt deflation, that is currency deflation, falling more than six percent.
South Korea, EWY, and South Korea Small Caps, SKOR
Australia, EWA, and Australia Small Caps, KROO,
Russia, RSX, and Russia Small Caps, RSXJ,
Brazil, EWZ, and Brazil Small Caps, BRF,
South Africa, EZA,
Canada Small Caps, CNDA,
Japan, EWJ, and Japan Small Caps, JSC, the small caps are hit less because the Bank of Japan has intervened to buy small cap ETFs.
Great Britain, EWU,
FactorShares 2X Gold/ Short S&P, FSG, is in the middle of an Elliott Wave 3 up.Gold, GLD, both a commodity and a currency, manifested the bearish lollipop, the hanging man candlestick, at the top of an ascending wedge.
5) … In today’s news
Tyler Durden reports The War Against The Rating Agencies Begins: Italy Prosecutor Seizes Moody’s, S&P Documents “And so the war against the rating agencies is now official as a floundering Europe does anything in its power to scapegoat anyone and everyone, starting with its natural sworn enemy of course, the rating agencies. According to Reuters, “Italian prosecutors have seized documents at the offices of credit rating agencies Moody’s and Standard & Poor’s in a probe over Suspected “anomalous” Fluctuations in Italian share prices, a prosecutor said on Thursday.” Ah yes, it is Moody’s fault that Unicredit, Intesa, Fiat and pretty much all other Italian companies now close limit down at least once a day. Either way, this is sure to end well. We will bring you more as we see it.”
Open Europe editorialises Italy’s crisis: All You Need Is Faith
Associated Press reports Russia warns Syrian ruler he may face ‘sad fate’
6) .. Europe needs a savior. Who will rise to provide both leadership and seigniorage, that is moneyness, in Europe?
The new age of neoauthoritarianism is rapidly emerging; it was foreseen by the Club of Rome in 1974, which called for ten regions of global governance, where national sovereignty is sacrificed for the security and prosperity of a common purpose and vision. Out of today’s sovereign debt and European banking crisis, a European Chancellor, The Sovereign, will rise to rule like Charlemagne, in a type of revived Roman Empire, that is a One Euro Government. He will be accompanied by an adept banker, the Seignior. Where as the seigniorage of neoliberalism was based upon debt and people had liberty to pursue prosperity, the seigniorage of neoauthoritarianism will come from the word, will and way of sovereign leaders, who impose debt servitude and austerity for all. The debts of neoliberalism will not be forgiven. The Sovereign and the Seignior will apply them first to everyone in Europe, and then to every man, woman and child in the world.
7) … Charts of the day
Russell 2000 Leader, Decker Outdoor Advertising, DECK,
The currency leverage curve, that is the currency demand curve, RZV:RZG, manifested bearish engulfing and turned lower today, documenting that competitive currency devaluation is underway.
The Morgan Stanley Cyclical Index, Basic Material Component, Freeport McMoRan Copper & Gold, FCX