Pre Opening Financial Market Report for October 14, 2011
The rally in world stocks, ACWI, and world small cap stocks, VSS, stalled yesterday, as the financial world signaled a Credit Breakdown.
A deficit of Trust, a Trust Deficit, formed as investors turned away from financials as JP Morgan, JPM, and Morgan Stanley, MS, announced their quarterly performance. Credit is seen evaporating as Bloomberg reports Libor Diverges Most Since 2009 As Europe Struggles. And Reuters reports Issuance Rumours Fuel China Bank Funding Concerns. The chart of China Financial, CHIX, shows the dramatic capital flight from China banks prior to the last seven days of rallying, which was aided by Chinese using FX currency reserves to buy stocks. Bloomberg reports Chanos Says China Banks Deteriorating. Jim Chanos, the hedge-fund manager who’s been betting that Chinese bank stocks will tumble, said a rally spurred by government purchases of the shares hasn’t changed his bearish outlook.
The Too Big To Fail Banks, RWW, Financials, XLF, European Financials, EUFN, Banks, KRE, KBE, and IAT, Investment Bankers, KCE, traded lower. Asset Manager Blackstone, BX, and lender Capitol One, COF, also traded lower. Tyler Durden reported Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, And Having Capital Shortfall. The UK bank, RBS, and the German bank, DB, have the greatest capital shortfall: DB fell 5% and RBS 6%.
Silver mining stocks, SIL, are often a canary in the stock market coal mine; they are also yen carry trade investment driven; now in trading lower, they suggest an end to a rally. These are always yen carry trade driven, and the EUR/JPY in trading lower, turned the silver miners, SIL, 1%, lower as the Euro, FXE, traded lower and the Yen, FXY, traded higher. Action Forex shows the chart of the EURJPYP turning over; it suggests that competitive currency deflation is going to resume causing deleveraging and disinvestment, putting an end to the Milton Friedman Free To Choose floating currency regime.
Gold mining stocks, GDX, are performed bearishly as well. I point out that at market turns, the HUI Precious Metals, GDX, and the 30 Year US Government Bond, GDX, always make market turns lower together; and the ratio of GDX:EDV, traded lower, suggesting that both stocks and bonds are going lower. The ratio of basic materials, IYM, to US commodities, USCI, IYM:USCI, has hit resistance and is turning lower. Likewise the ratio of materials, XLB, to commodities, DBC, XLB:DBC, has hit resistance and is turning lower, suggesting that the materials rally is over. About the only bright spot was semiconductors, XSD, up 4%.
Bearishness formed in the stock market, as the currency yield curve, RZV:RZG, traded lower. and the Optimized Carry ETN, ICI, showed a hammer at 200 day average, suggesting that the current risk trade and carry trade rally is over. This is confirmed as the Yen, FXY rose, and the two yen carry trades, DBV:FXY, and CEW:FXY, performed bearishly. Currency carry trade driven Thailand, THD, and New Zealand, ENZL, turned lower. The Finviz portfolio of large and carry traded banks BSBR, ITUB, BBD, BMA, BBVA, BFR, FBP, IBN, HDB, WF, UBS, NBG, RBS, STD, DB, LYG, as a group traded lower, suggesting that a market change is at hand.
The Finviz portfolio of hot stocks and ETFs, traded lower. and the stock market weather vane company, retailer Children’s Place, PLCE, turned strongly lower.
Bloomberg reported, in after trading hours, Spain Credit Rating Cut by S&P on Weak Outlook.
Bloomberg reports Portugal Plans Deeper Cuts in Moment of ‘National Emergency,’ Coelho Says.
GE has a boondoggle in the making, as few will be buying solar panels in the soon coming downturn. The Denver Post reports GE Set to Build $300 Million Solar Panel Plant in Colorado. General Electric is set to announce plans to build one of the country’s largest thin film solar panel plants in Aurora creating an estimated 350 jobs, according to sources. The $300 million plant will be located in a 200,000 square foot former L’Oreal Worldwide warehouse in the Majestic Commerce Center northeast of I-70 and Tower Road. One source said this morning that the plant will go to Aurora and the city will provide about $20 million in incentives with the state providing roughly $2 million.
Unpayable levels of municipal debt was one of the causes of the Great Depression. Now, Jefferson County Alabama may file for bankruptcy, as Bloomberg reports Jefferson County Democratic Lawmakers May Derail Debt Deal. Kenneth Klee, the county’s bankruptcy lawyer, told the lawmakers that a Jefferson County filing “would be like Chernobyl” for bond ratings in Alabama.
The US Federal Reserve has used Dollar Hegemony and ZIRP to internationalize private debt. Between The Hedges relates China Daily reports the US has skillfully shifted the cost of its domestic financial crisis to other countries, first nationalizing private debt, and then using the dollar’s positions as the global reserve currency to internationalize that debt, Zhang Monan, a researcher at China’s State Information Center, writes in a commentary.
The world is now passing through peak credit as Total Bonds has turned lower .Total Bonds, BND, has now turned lower, and is trading at the edge of a head and shoulders pattern at 83, documenting that the world has passed through Peak Credit. Tyler Durden reports In six consecutive weeks, foreigners have sold $74 billion, or more government bonds in a sequential period of time than ever before.
Operation Twist has benefited holders of longer duration bonds; but now, with investors are selling US Treasuries. The Federal Reserve Policy will only be destructive to the Fed. Under Operation Twist, the Fed intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years, and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. The Flattner ETF, FLAT, is now trading lower, and the Steepner ETF, STPP, is now trading higher reflecting a steepening of yield curves. The Zeroes, ZROZ, the 30 Year US Government Bond, EDV, and the 10 Year US Government Note, TLT, are now trading lower as investors are fading QE1, QE2, and Operation Twist. The 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, is on the way up, which opens the door for bond vigilantes to call interest rates higher, further destroying bond values. Now bonds, BND, will be joining stocks, ACWI, in going lower.
CBS Detroit reports that nearly half of all the people living in Detroit can’t read. And The Economic Collapse Blog reports that in Detroit today, there are over 33,000 abandoned houses, 70 schools are being permanently closed down, the mayor wants to bulldoze one-fourth of the city and you can literally buy a house for one dollar in the worst areas.
The world stands on the precipice of Sovereign Armageddon, that is a credit bust and global financial breakdown. It will come out of Gotterdammerung, the clash of the gods, that is the conflict between world leaders and investors, and was foretold in bible prophecy in Revelation 13:3:4. One Leader, the Sovereign, Revelation 13:5-10, and his banker, the Seignior, Revelation 13:11-18, will arise to speak for and to the Eurozone, which will be transformed into a Federal Europe, as leaders meet in summits and wiave national sovereignty, and implement a Fiscal Union, empower the ECB as a bank, and develop a common European Treasury. Seigniorage, that is moneyness, will no longer be based upon debt, but rather will be based upon the diktat of austerity measures and debt servitude; people will be amazed by this, and place their faith in it, and give their full allegiance to it, Revelation 13:3-4.
God is destroying nations and national sovereignty, and all current forms of economic life, such as Capitalism, and Greek Socialism, so as to reveal the sovereignty of his Son, by providing a European superstate, as part of a ten toed kingdom of regional economic government, Daniel 2:42, where eventually ten kings will rule in each of the ten toes, that is the world’s ten regions, Revelation 17:12-14.
Under Neoliberalism, fiscal sovereignty came from sovereign nations issuing sovereign debt. But under Neoauthoritarianism, where nations have lost their sovereign debt authority, the Sovereign and the Seignior will have fiscal sovereignty. Credit will not come from the securitization of debt; but rather from the word, will and way of sovereigns and stakeholders appointed from industry and government. Lending will only go firms that are key to the region’s security and prosperity.
Some make the case for breakup of the Eurozone. Edward Harrison wrote in early September in Credit Writedowns stating breakup of the euro zone is likely. Mike Mish Shedlock in June, wrote “the policy decisions that governments and the EU are making cannot be maintained politically in the periphery or in the core”. Nouriel Roubini wrote the Eurozone could break up over a five-year horizon. And Mr. Shedlock writes: “We both stated that the key to maintaining the euro zone at all was the potential for closer integration of the member states. But the German Constitutional Court decision makes this nearly impossible.” Ambrose Evans Pritchard relates German court curbs future bail-outs, bans EU fiscal union.
Libertarians and Austrian Economists have a hero in Ron Paul, whose philosophy is fathered by Murray Rothbard, Ludwig von Mises, and Friedrich Hayek, and continued today by Lew Rockwell of the Mises Institute. As a group, those of the Austrian School of Economics envision a world with sovereign individuals and sovereign nations each with its own currency.
But, liberty, freedom and choice are mirages on the Neoauthoritarian desert of the real. God has ordained in Revelation 13:1-4, that the beast regime, with its seven heads, symbolizing mankind’s seven institutions, and ten horns symbolizing the world’s ten regions, rule humanity. Neoauthoritarianism will manifest as statism and totalitarian collectivism.
The believe has three hopes. The hope for a place of sanctuary, Revelation 12:1-15, the hope of ruling and reigning with Christ for a thousand years, Revelation 5:9-10, and the hope of the new heaven and the new earth, Revelation 21:1. I recently wrote that one should watch and pray always, that one might be accounted worthy to escape all the things that will come to pass, and to stand before the Son of Man.