Financial Market Report for the week ending Friday August 14,, 2012
1) … This week Daily Ticker reports Bernanke’s Bazooka: Aggressive, Open-Ended QE3.
The open-ended nature of this round of QE is a “very aggressive move,” says Reuters reporter Pedro Nicolaci da Costa,
- Read the Fed statement
- Stocks push to 3-week high, bet on Fed action
- Oil rises after Fed takes steps to boost economy
- Treasuries sell-off on QE3
- Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates
The World Central Bank Chiefs brought out their big bazookas. Mario Draghi’s Monetary Outright Transactions Program, OMT, and Ben Bernanke’s QE3, were the aggressive monetary easing, read money printing, that the financial markets were waiting for. Neoliberalism’s debt trade expanded to what is likely the maximum possible benefit, with Fidelity’s distressed investments, Capital and Income Fund, FAGIX, expanding to its greatest value in a year at a price of 9.45. Full monetary expansion has likely been achieved; it is unlikely there be a QE-Infinity Market Rally. Peak fiat wealth, and peak money, have been attained. Definitely peak credit has been achieved as Total Bonds, BND, traded lower this week, and lower for the month, as World Stocks, VT, VSS, and Commodities, DBC, traded higher, on what is likely the last expansion of the global debt trade. The see saw destruction of fiat wealth is underway now that total bonds are trading lower.
Emerging Market Currencies, CEW, traded higher, taking the Emerging Markets, EEM, Poland, EPOL, Turkey, TUR, Egypt, EGPT, Thailand, THD, New Zealand, ENZL, the Philippines, EPHE, Austria, EWO, and Argentina, ARGT, higher.
Major world currencies, DBV, jumped higher as the Indian Rupe, ICN, the Australian Dollar, FXA, the Canadian Dollar, FXC, the Euro, FXE, the South African Rand, SZR, British Pound Sterling, FXB, the Brazilian Real, BZF, the Swiss Franc, FXF, the Swedish Krona, FXS, the Russian Ruble, the Taiwan Dollar and the South Korean Won, rose. The Euro, FXE, closed at 130.40 on risk on momentum investing. The Japanese Yen, FXY, traded basically unchanged. The US Dollar, $USD, UUP, plummeted. The Mexico Peso, FXM, traded lower. Major stock exchanges South Korea, EWY, Sweden, EWD, Australia, EWA, Taiwan, EWT, Hong Kong, EWH, Russia, RSX, Singapore, EWS, India, INP, Switzerland, EWL, Mexico, EWW, Canada, EWC, Italy, EWI, and Spain, EWP, rose strongly.
Commodities, DBC, and US Commodities, USCI, rose as Silver, SLV, Timber, CUT, Base Metals,, DBB, Gold, GLD, Copper, JJC, Oil, USO, Agricultural Commodities, RJA, Natural Gas, UNG, rose. Unleaded Gas, UGA, traded unchanged. month. Bloomberg reports Commodities set for longest run of weekly gains since 2010. Commodities headed for the longest run of weekly gains since 2010 as the Federal Reserve’s third round of monetary measures to boost the U.S. economy spurred speculation that energy and metal demand will increase as the US dollar declines. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 1.1 percent to 694.71 at 12:29 p.m. New York time. The gauge was poised for the seventh straight weekly advance, the longest rally since October 2010. Industrial metals led the rally, and crude oil in New York topped $100 a barrel for the first time since May.
Total Bonds, BND, traded lower, as US Treasuries, ZROZ, EDV, TLT, BAB, BABS, Municipal Bonds, MUB, Longer Duration Corporate Bonds, BLV, Corporate Bonds, LQD, traded lower, as the 10 30 US Sovereign Debt Yield Curve steepened, as is seen in the chart of the Steepner ETF, STPP, rising. The Interest Rate on the US Ten Year Note, ^TNX, rose to 1.86%. Mortgage Backed Bonds, MBB, Senior Bank Loans, BKLN, Emerging Market Bonds, EMB, Junk Bonds, JNK, International Corporate Bonds, PICB, International Treasuries, BWX, and Leverage Buyouts, PSP, traded higher. The global government bond bubble is about to burst. Maximum credit expansion has likely occurred as the final dick the can down the road maneuver has been executed.
Cheap credit coming through the Fed currency debasement 3 caused Silver Miners, SIL, SSRI, Gold Miners, GLDX, GDX, GDXJ, to rise to new highs. A falling US Dollar drove up demand for risk assets such as Rare Earth Miners, REMX, Aluminum MIners, ALUM, Metal Manufacturing, XME, Steel, SLX, Coal Miners, KOL, Copper Miners COPX,Energy Service, IEZ, OIH, European Financials, EUFN, Financials, XLF, the Too Big To Fail Banks, RWW, Investment Bankers, KCE, Stock Brokers, IAI, Small Cap Revenue, RWJ, Paper Manufacturers, WOOD, Small Cap Energy Shares, PSCE, Small Cap Materials, PSCM, Small Cap Consumer Discretionary, PSCD, and Small Cap Technology, PSCT. Home builders, ITB, rose to a new high, World small cap stocks, VSS, rose more strongly than the world stocks, VT. The Morgan Stanley Cyclicals Index, ^CYC, rose 4%.
The dollar carry trade, that is the the sell of the US Dollar, $USD, UUP, and the purchase of Emerging Market Currencies, CEW, and Major World Currencies, DBV, has caused the Small Cap Pure Value, RZV, to rise more strongly than the Small Cap Pure Growth Shares, RZG, as is seen in this ongoing Yahoo Finance Chart of RZV and RZG. Debt deflation, that is currency deflation of the US Dollar, has caused finally caused US Treasuries, ZROZ, EDV, TLT, to fall lower in value. Doug Noland reltes The U.S. dollar index dropped 1.8% to 78.847 (down 1.7% y-t-d).
Investors anticipation of purchase of longer duration Treasuries, EDV, in QE2, and mortgage backed bonds, MBB in QE3, underwrote an ongoing risk-on momentum trade, beginning in June 2012, led by US Consumer Service, IYC, Real Estate, IYR, Small Cap Real Estate, ROOF, the Too Big To Fail Banks, RWW, and now a likely blow off top in US Infrastructure, PKB, US Home Building, ITB, Copper MIning, COPX, Small Cap Revenue, RWJ, and Small Cap Value, RZV, as is seen in this ongoing Yahoo Finance chart of MBB and RZV, RWJ, RWW, IYC, IYR, COPX, ITB, PKB, ROOF
Russia, RSX, Russia Small Caps, ERUS, China Infrastructure, CHXX, China Real Estate, TAO, China Small Caps, HAO, China Minerals, CHIM, China Industrials, CHII, India Infrastructure, INXX, India Earnings, EPI, led the BRICS, EEB, higher.
The bond vigilantes have gained a nascent control of US Sovereign debt interest rates. With a steepening 10 30 US Sovereign Debt Yield, Curve, ^TNX:^TYX, seen in the Steepner ETF, STPP, rising, the monetary authority of the US Federal Reserve has started to wane. Doug Noland relates M2 (narrow) “money” supply jumped $17bn to a record $10.089 TN. “Narrow money” has expanded 6.8% annualized year-to-date and was up 6.3% from a year ago.
2) … In the news
Barron’s Like the ECB, the Fed vows to do whatever it takes
Casey Research Paradigm collapse
Mike Mish Shedlock China’s shadow banking system collapses exposing numerous Ponzi schemes
Mike Mish Shedlock Panic!
Seeking Alpha Why QE3 can’t work: Understanding the liquidity trap
The Automatic Earth Those Dutch Tulips ain’t looking all that rosy
Mises Institute Martin Armstrong on the Sovereign Debt Crisis
Follow The Money QE3: welcome to the era of unlimited money printing
Automatic Earth Bernanki and Draghi are not trying to save our economies
Institutional Risk Analyst Basel III as the next Smoot-Hawleyt
Money And Market Insanity at the Fed! Bernanke to print $480 million!
Zero Hedge Spain is Greece… only bigger and wors
Armstrong EConomics QE3 confirms the economic implosion
Daily Ticker 2008 Financial Crisis Cost Americans $12.8 Trillion. Better Markets, a pro-financial reform Wall Street watchdog, has released what it is calling the “first-ever” report totaling the loss of American wealth since Lehman filed for bankruptcy on Sept. 15, 2008
Reuters Exclusive: Ghost warehouse stocks haunt China’s steel sector. Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place. China’s demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth. As defaults have risen in the world’s largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said. Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world’s steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments. “What we have seen so far is just the tip of the iceberg,” said a trader from a steel firm in Shanghai who declined to be identified as he was not authorized to speak to the media. “The situation will get worse as poor demand, slumping prices and tight credit from banks create a domino effect on the industry. (Hat Tip to Gary of Between The Hedges)
Doug Noland QE Forever. “Congratulations Mr. Bernanke. I’m happy, my assets’ values go up. But as a responsible citizen I have to say the monetary policies of the U.S. will destroy the world.” Marc Faber, investor, analyst and writer extraordinaire, September 14, 2012, Bloomberg Television.
Speculative financial leveraging created an unlimited supply of Credit/marketplace liquidity. Unlimited supply, then, led to a wholesale mispricing (under-pricing) of finance. This was particularly problematic for asset markets, where the over-abundance of cheap Credit fueled asset price inflation. Higher asset prices, then, created heightened demand for additional Credit, which was satisfied at ongoing low borrowing costs. As Credit will do if not restrained, it all became self-reinforcing – or “recursive.” And as the quantity of unlimited, mispriced and asset-centric Credit exploded, resources throughout the entire economy were badly misallocated. A decade or so ago I explained the dangers of “Financial Arbitrage Capitalism.” Somehow, the notion that our system needs only greater quantities of mispriced and misallocated finance has yet to be discredited.
There’s no reasonable justification for Dr. Bernanke taking such extreme risks with financial and economic stability. And I struggle to understand how he doesn’t see the likely consequences. After the cult of Greenspan, I thought we had learned a lesson from having one individual exert such power and influence. Indeed, the Federal Reserve has now grossly overstepped its role. Never was it anticipated that the Fed would resort to massive purchases of Treasury bonds and mortgage-backed securities in a non-crisis environment. Never was it contemplated that our central bank would resort to pre-committing to massive ongoing money printing in the name of reducing the unemployment rate. It is, as well, the nature of speculative manias for things to turn crazy in the destabilizing terminal-phase. The past few weeks – with more than ample Bubble accommodation and craziness – really make me fear that eventual day of reckoning.
Robert Wenzel of Economic Policy Journal relates Ron Paul Responds to Fed Decision to Launch QE3
Ron Paul issued the following statement in response to the Federal Reserve announcement that it will launch a new round of quantitative easing: No one is surprised by the Fed’s action today to inject even more money into the economy through additional asset purchases. The Fed’s only solution for every problem is to print more money and provide more liquidity. Mr. Bernanke and Fed governors appear not to understand that our current economic malaise resulted directly because of the excessive credit the Fed already pumped into the system.
“For all of its vaunted policy tools, the Fed now finds itself repeating the same basic action over and over in an attempt to prime the economy with more debt and credit. But this latest decision to provide more quantitative easing will only prolong our economic stagnation, corrupt market signals, and encourage even more misallocation and malinvestment of resources. Rather than stimulating a real recovery by focusing on a strong dollar and market interest rates, the Fed’s announcement today shows a disastrous detachment from reality on the part of our central bank. Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious.”
3) … Commentary
World Stocks, VT, VSS, and Commodities, DBC, USCI, are likely to trade lower beginning next week with the Shanghai shares shares, traded by, CAF, US INfrastructure, PKB, laden with Cement Producers,and Building Material Wholesalers, Steel, SLX, Metal Manufacturing, XME, Home Builders, ITB, Semiconductors, XSD, Aluminum Producers, ALUM, Small Cap Pure VAlue, RZV, and the National Bank of Greece, NBG, are likely to lead the way lower, as the credit cycle, that is the business cycle is complete on a full expansion of credit and monetary expansion, putting an end to the risk on rally that began in early June 2012: the daily chart of world stocks, VT, likely shows a blow off top with a hammer candlestick close at 49.94. Inflationism will likely turn now to deflationism on disinvestment and derisking. The sixty year long wave, which began in 1948, the Kondratieff Wave, is now likely complete as the Central Bankers have gone all in. The conditions for a global catastrophic failure are in place.
Financial moral hazard will now be breaking out as the seigniorage, that is the moneyness, of the Neoliberal Milton Friedman Free to Choose floating currency regime, which has been based on a global debt trade, crumbles as trust of the debtor wanes. A new seigniorage, that is the seigniorage of diktat of regional governance emerges; traditional credit and neoliberal finance are characteristics of a bygone era of prosperity.
Jesus the Christ, is passing the baton of sovereignty is passing from sovereignty countries to regional bodies such as the ECB and the troika, as leaders meet in summits and announce regional framework agreements, Revelation 6:1-2, to effect the economy of God for the fullness of our current time, as Neoliberalism yields to Neoauthoritarianism, Ephesians 1:10. Monetary authority will no longer be based upon the debt paying capability of nations, but rather on political leaders of regional monetary popes and cardinals. The fiat money system is now giving way to the diktat money system. Monetary sovereignty will no longer be held by nations, but rather by regional blocs as regionalism rises to replace crony capitalism and European Socialism. Evidence of the loss of monetary sovereignty comes from the Zero Hedge report Europhoria officially over: Spanish 10Y breaks 6% the wrong way.
We are witnessing the fulfillment of Bible prophecy of Daniel Daniel 2:30-33, which foretells that the twin iron legs of global hegemony will give way to the ten toed kingdom of regional economic and political governance; and also the fulfillment of bible prophecy of John the Revelator, that in Europe, a beast system, Revelation 13:1-4, a beast ruler, Revelation 13:5-10, and a beast banker, Revelation 11-18, will rise to power to establish totalitarian collectivism and austerity in a type of revived Roman empire. In These Times writes In the twilight of empire.
Cristoph Dreier of WSWS reports The troika returns to Athens. The EU has transformed Greece into a protectorate, in which European companies can exploit workers at low wages. And Mike Jobson of WSWS reports Alcoa workers travel to Rome to protest imminent plant closure. On September 10 about 500 Alcoa workers from Sardinia travelled to Rome to protest the imminent closure of their plant located in Portovesme.
Nick Beams of WSWS reports Financial parasitism and looting are the “new normal”. The actions of the world’s major central banks signify that there is no prospect of a return to what were once considered “normal” conditions.
Bespoke Investment Blog reports Highest Percentage of Bulls in Three Months. We’ve now gotten two weeks in a row of more bulls than bears in our weekly market poll, which asks whether the S&P 500 will be higher or lower one month from now. This week’s bullish reading of 56% is the highest level seen in three months. A lot of optimism has creeped up over the past week, so don’t be surprised if we get a pullback here. Given such bullishness one may consider investing in these Bear Market ETFs, SMN, BZQ, EEV, BIS, FXP, SKF, DUG, SQQQ, REW, RUSS, DPK, SZK, SCC, MZZ, SSG, RXD, STPP seen in this Finviz Screener; or one may consider investing in these Volatility ETFs TVIX, CVOL, VIXY, VXX, VIIX, TVIZ, VXZ, VIXM, seen in this Finviz Screener.