World Stocks Enter Elliott Wave 3 Of 3 Down … And The World Passes Through Peak Credit As Total Bonds Rise To New High

Financial Market report for the week ending Friday September 28, 2012

1) … Introduction
As world stocks, ACWI, turned down the week ending Friday September 14, 2012, manifesting an Elliott Wave 3 Down, the world passed through through peak credit, as Total Bonds, BND, Municipal Bonds, MUB, Corporate Bonds, LQD, Emerging Market Bonds, EMB, International Treasury Bonds, BWX, International Corporate Bonds, PICB, rose to new weekly highs on September 28, 2012.  Junk Bonds, JNK, Senior Bank Loans, BKLN, Leveraged Buyouts, PSP, and Distressed Investments, FAGIX,  have turned lower from their August 14, 2012 highs. Today, October 1, 2012, the linked daily chart of Municipal Bonds, MUB, shows them manifesting bearish harami at the top of an wedge suggesting that they have indeed topped out.

The Morgan Cyclical Index, ^CYC, is trading down from its recent September 14, 2012, high, which was the start of an Elliott Wave 3 of 3 Down. Residential REITS, RWR, have been leading REITS, RWR, Real Estate, IYR, and Small Cap Real Estate, ROOF, as is seen in this ongoing Yahoo Finance Chart.. And the Large Cap Growth Stocks, JKE, and the Russell 2000 Growth Shares, IWO, have been trading lower from their September 14, 2012 highs, on the failure of the world central bank’s monetary authority to sustain global growth and corporate profits; inflationism is turning to deflationism.

Major World Currencies, DBV, rose, on a higher US Dollar, $USD, UUP. Emerging Market Currencies, CEW, traded near its September 14, 2012 high.  Doug Noland reports fFor the week on the downside, the euro, FXE, declined 0.9%, the Danish krone 0.9%, the Australian dollar, FXA, 0.8%, the Swiss franc, FXF, 0.7%, the Canadian dollar, FXC, 0.7%, the South African rand, SZR,  0.4%, the British pound, FXB, 0.4%, the Singapore dollar 0.2%, the Brazilian real, BZF,  0.2% and the Swedish krona, FXS, 0.1%.

The weekly currency demand curve, RZV:RZG, manifested a bearish harami at the top of an ascending wedge that had risen since June, 1, 2012, communicating that the dollar carry trade, that is the sell of the US Dollar, and the purchase of risk currencies, has ended.  The Euro, FXE, closed at 127.69, down from its 130.40 high on September 14, 2012 as the WSJ reports Slumping Euro dogged by doubts.   After its biggest rally in months, some old doubts about the euro are creeping back in. Investors cheered the European Central Bank’s proposal to buy the debt of troubled euro-zone members, announced on Sept. 6. But the plan already has hit its first potential snag: Spain, the region’s fourth-largest economy, hasn’t yet requested aid, a key condition for setting a bailout in motion. Some euro bears say the ECB’s bond-buying plan, which many took as a sign Europe had turned a corner in addressing its debt problems, is turning out to be just the latest temporary jolt for a currency in the middle of a protracted slide against the dollar. Since hitting a four-month high on Sept. 14, the euro is down in six of the last nine trading days, ending New York trading at $1.2913 Thursday. The euro is still up 7% from a two-year low hit in July. The crisis “is like a long-term illness that flares up periodically, and it’s not over by any stretch of the imagination,” said Nicholas Pifer, who oversees $7 billion as head of Columbia Management’s fixed income group and has bet against the euro. “The history of the euro crisis so far has seen measures announced that looked good but whose implementation proved difficult.”

Doug Noland writes M2 narrow “money” supply increased $13.8bn to a record $10.138 TN.  Narrow money has expanded 7.1% annualized year-to-date and was up 6.9% from a year ago. And Robert Wenzel of Economic Policy Journal provides the FRED chart

2) … Reuters reports the details of this week’s turn lower in stocks Weaker growth and debt concerns send world shares lower.
Markets moved lower as investors looked past recently announced central bank stimulus plans and focused on weak economic fundamentals and the unresolved European debt crisis. The monthly chart of World Stocks, ACWI, shows that stocks world wide have entered an Elliott Wave 3 of 3 Down, as the S&P, SPY, the Dow, DIA, the PowerShares Nasdaq, QQQ, have topped out in an Elliott Wave 5 Up. Total Bonds, BND, put in an Elliott Wave 5 High, Commodities, DBC, have entered an Elliott Wave 3 of 3 of 3 Down on the exhaustion of the world central banks’ monetary authority.

Peak fiat wealth has been achieved as competitive currency devaluation is underway as the weekly chart of the US Dollar, UUP, shows a rise, with Major World Currencies, DBV, and Emerging Market Currencies, CEW, have likely topped out.

Monetization of debt, that is debt debauchery, has been propelling the US Dollar, $USD, lower from its recent June through July 2012 high.  Now it is the rest of the worlds’ currencies turn to follow the Dollar into the Pit of Financial Abandon, as MIke Mish Shedlock writes Bernanke declares war on Canadian economy Rest of the world too. The Canadian Dollar, FXC, fell sharply lower; Canada, EWC, and Canada Small Caps, CNDA, will no longer be a safe haven investment as Mike Mish Shedlock writes, Toronto New home sales plunge 64 percent; lowest August on record.  International Business Times reports Global currency wars in full escalation

The National Bank of Greece, NBG, Bank of Ireland, IRE, Banco Santander, SAN, Deutsche Banks, DB, led European Financials, EUFN, Greece, GREK, Spain, EWP, Italy, EWI, and Europe Shares, VGK, lower as Mike Mish Shedlock writes Spain warns Catalonia separatists of treason charges in Military.  Ambrose Evans Pritchard writes Spain’s crisis flares again as AAA club scuppers bank rescue deal. Spain’s debt crisis has returned with a vengeance after Germany, Holland and Finland reneged on a crucial summit deal and scuppered hopes of direct eurozone help for Spanish banks. Stock Research Portal writes Greek debt report may be delayed for U.S. political reasons.  Mike Mish Shedlock also writes Fire bombs, tear gas, riots near Greek Parliament; 57% say Greece should abandon pledges made to Troika.  Once again things are out of control in Greece. A general strike is underway, and schools, hospitals, and transit are affected. Firebombs and teargas have hit Athens as Greek citizens are protest the latest round of austerity measures. Sentiment in Greece has turned, and likely turned for good. 57% of Greeks have had enough of austerity to the point they would rather default. ….. Turn back the hands of time a bit and think how this might have played out if Greece simply left the euro and defaulted three years ago as it should have. Tourism would likely have increased and if  Greece had implemented true structural reforms rather than tax hikes, its economy would be stable or recovering now. Instead, the country is in ruins, tourism is down, and in an on-again-off-again fashion, absolute chaos breaks out.  If another round of elections were held today, there is no way Samaras would win. Instead, the radical left, and radical right (both of which want to exit the euro), would be fighting over the pieces. The nannycrats in Brussels and Chancellor Merkel are to blame for this sad state of affairs. Finally, please note that the big fear of the nannycrats and Merkel is not that Greece leaves the euro per se, but rather Greece leaves the euro and the Greek economy starts to recover.  Well, here’s the deal and it is something I said years ago: the sooner Greece abandons the euro, tells the Troika to go to hell, and defaults, the better off it will be.

Brazil Financials, BRAF, especially ITUB, and BSBR, led Brazil, EWZ, lower. Argentine Bank BBVA, and BBD, led Argentina, ARGT, lower. Credit Suisse, CS, and UBS AG, led Switzerland, EWL, lower. Japanese Banks, NMR, MFG, and SMFG, led Japan, EWJ, lower as Inside Investing Daily asks Is Japan losing its moorings?   Life Insurance company ING Groupe, ING, was one of the stocks which led the Netherlands, EWN, lower.

Mortgage REITS, REM, fell parabolically lower, as is seen in this combined ongoing Yahoo Finance chart of SFI, RAS, HHC, and BDN; taking Small Cap Real Estate, ROOF, and Real Estate, IYR, lower. Bloomberg reports US 30 year mortgage rates fall to record low of 3.4% as the chart of Mortgage Backed Bonds, MMB, trades lower near its all time high

Semiconductors, XSD, Steel, SLX, Metal Manufacturing, XME, and Printed Circuit Boards, JBL, traded lower.

Silver Miners, SIL, SSRI, Gold MIners, GDXJ, GDX, Uranium Miners, URA, Coal MIners, KOL, Rare Earth Miners, REMX, Aluminum Producers, ALUM, led S&P Materials, MXI, lower.

Small Cap Energy, PSCE, Energy Service, OIH, IEZ, and Energy Production, XOP, traded lower as AP reports Oil falls below $92 on gloomy economic outlook.

US Infrastructure, PKB, falling strongly lower included Industrial Electrical Equipment, ETN, ROK, Buildings Material Wholesaler, BECN, Cement Manufacturers, CHR, JHX.

Oracle, ORCL, and Sales Force, CRM, led Cloud Computing, SKYY, lower; it and Smartfone, FONE, led Nasdaq shares lower.

Country stocks, seen in this Finviz Screener, were elevated by the recent bout of neoliberal finance, that is world central banks’ monetary policies, over the last quarter, which provided carry trade financing on the sale of the US Dollar, -1.1%, YTD.  24th Gold writes The Fed is the great enabler. The Money provides An update on the collapse of the dollar. Business Week reports Italy sells bills at lowest rate since March on ECB plan. International Treasury Bonds, BWX, and International Corporate Bonds, PICB, remain near their recent all time highs. Business Week reports Spanish bonds slide on call for bank bailout limits; bunds gain.
EGPT 20%
EWG 20 rose on Telecom Services, SI, Application Software Manufacturer, SAP
NORW 20 rose on Oil Producer, STO
EWP 20
EWI 19
IRL 18 rose on Industrial Equipmentment Manufacturer IR, and Cement Producer CRH
EWD 16 rose on Auto Parts Producer, ALV
EWN 15 rose on Agricultural Equipment Manufacturer CNH, Electronics Manufacture, PHG, Energy Producer, RGS-B, Energy Service Company, CLB.
ENZL 15
EPOL 12
ARGT 12
EWC 12 rose on Drug Manufacturer VRX, Apparel Manufacturer LULU, GIL, Paper Producer MER, Wireless Communications RCI, Telecom Services BCE, Real Estate BAM, Food Producer STLK, Biotech, NVD, Medical Instruments, IMRS, Consumer Services STB, Cable TV SJR, Agricultural Chemicals AGU,
EWS 12
RSX 12
TUR 11 rose on Wireless Communications, TKC,
EWL 11 rose on Industrial Equipment Manufacturer ABB, and Energy Producer NE
EWT 11 rose on Telecom Services CHT, Specialized Semiconductors, HIMX, SPIL, Semiconductor TSM, IMOS,
EWY 10 rose on Telecom Services KT, Wireless Communications, SKM, Electricity Producer KEP, Electronics Manufacturer LPL.
EWW 10 rose on Brewer FMX, Beverage Manufacturer KOF, Television Broadcaster TV, Heavy Construction, ICA, Food Producer IBA, Airline OMA, Steel Producer SIM, Food Producer GMK,  Cement Producer CX,
THD 11
EWA 11
EWZ 11 rose on Chemical Manufacturer BAK, Food Producer BRFS, Confectioners CZZ, Paper Manufacturer FBR, Home Builder BFR

Countries turning lower this week include, EWP, EWI, GREK, EWG, EWO, EWN, EWD, RSX, NOR, EIRL, EWL, EWZ, VNM, and TUR.  Yet, Israel, EIS, Egypt, EGPT, New Zealand, ENZL, India, SCIF, INP, INXX, EPI, traded higher.

Banks, IXG, Credit Suisse, CS, and UBS AG, UBS, Switzerland, ….. ING Groep, ING, Netherlands, ….. Banco Santander, SAN, Spain, ….. Deutsche Bank, DB, Germany, ….. BancoBilbaoa, BBVA, Argentina, ….. Itau, ITUB, and Banco Santander, BSBR, and Banco Bradesco, BBD, Brazil, ….. Bank of Ireland, IRE, ….. National Bank of Greece, NBG, ….. Woon Financial, WF, Australia, Barclays, BCS , and Royal Bank of Scotland, RBS, United Kingdom, Japanese Banks, NMR, SMFG, MFG, traded lower.

Sectors turning strongly lower this week included, Steel, SLX, Metal Manufacturing, XME, Rare Earth Mining, REMX, Semiconductors, XSD, Small Cap Energy, PSCE, Copper Mining, COPX, Uranium Mining, URA, Aluminum Production, ALUM, Coal Miners, KOL, Energy Services, IEZ, OIH, Small Cap Technology, PSCT,  Shipping, SEA, Housing, ITB, US Infrastructure, PKB, Residential REITS, REZ, and Real Estate, IYR.

Both Transports, IYT, and Industrial, IYJ, turned lower. High Dividend Payers, DWX, DOO, and IST traded lower.

All of the Volatility ETFs, TVIX, CVOL, VIXY, VXX, VIIX, TVIZ, VXZ, VIXM seen in this Finviz Screener traded higher.

All of the bear market ETFS, SMN, BZQ, EEV, BIS, FXP, SKF, DUG, SQQQ, REW, RUSS, DPK, SZK, SCC, MZZ, SSG, RXD, SRS, seen in this Finviz Screener traded higher.

Bonds, BND, traded to a new high as International Treasuries, BWX, International Corporate Bonds, PICB, Emerging Market Bonds, EMB, Municipal Bonds, MUB, High Yield Municipal Bonds, HYT, and Corporate Bonds, LQD, traded to new weekly highs; but Long Duration Corporate Bonds, BLV, Leveraged Buyouts, PSP, Junk Bonds, JNK, Senior Banks Loans, BKLN, Mortgage Backed Bonds, MBB, traded lower. US Government Bonds, ZROZ, EDV, TLT, BABS, BAB, rose to resistance.

US Infrastructure, PKB, such as Labor Service Provider, TBI, Building Materials, HW,  MLM, MAS,Design Build Construction Company, USG, Rental & Leasing GMT, Home Improvement Stores, LL, traded lower, while Rubber And Plastic, AEPI, Networking Services, CVLT,  RAX, RDWR, AXCM, CTGX, SYNT, GWAY, NOW, ARUN, Israel, ACN, Diversified Machinery, GE, Industrial Equipment, MWA, traded higher.

Ireland’s Cement Manufacturer, CRH, traded lower.

Diode Manufacturer, CREE, traded lower.

Application Software BYI, SQI, PRO,  traded higher while Application Software, IGV, traded lower.

Restaurants, CHUY, BLMN, SONC, DIN, BKW, AFCE, traded higher.

Cable TV, VMED,  LBTYA, TWC, traded higher.

Communication Services, CCOI, CCI, AMT,  NTS, S, traded higher.

Media, PBS, with Newspaper Publishing components, MNI,  NYT, AHC, SSP, and Periodical Publishing components, United Kingdom, RUK, Netherlands, ENL, and TV Broadcasting components, GTN,  NXST, CBS, SNI, BLC, appear topping out.

Aerospace, TDG, LMT, appear topped out.

The Large Cap Growth Stocks seen in this Finviz Screener appear topped out.

Food Manufacturers seen in this Finviz Screener appear topped out

Credit Providers seen in this Finviz Screener appear topped out.

Long Term Care Facilities, CSU, ADK, ENSG, NHC, FVE, ESC, BKD, appear topped out.

Commodities, DBC, traded unchanged from last week, but below their September 14, 2012 high..

The US Dollar, $USD, UUP, traded higher this week, putting a cap on the rally in World Stocks, VT, that began June 1, and ended September 14, 2012.

3) … In The Week’s News
Jeff Black of Bloomberg reports  “European Central Bank Governing Council member Jens Weidmann said the proposed banking union can’t take responsibility for existing bad debts.  ‘In order to keep liability and control in balance, only risks that have arisen after common supervision is established can be taken under joint liability,’ Weidmann, who heads Germany’s Bundesbank, said… ‘The legacy burdens on bank balance sheets have to be underwritten by the countries under whose supervision they have arisen.’  Weidmann’s comments come after finance chiefs from Germany, the Netherlands and Finland said this week that direct recapitalization of banks by the euro area’s permanent bailout fund should be a last resort and that legacy debts should remain the responsibility of national authorities. European leaders agreed in June that, as part of a prospective banking union, banks would qualify for direct aid once an ECB-led supranational supervisory mechanism has been established.  ‘Mutualization of risks can’t be the primary purpose of a banking union,’ Weidmann said. Allowing the euro-area bailout fund to help ease the existing debts of banks would amount to ‘financial transfers,’ he said… Weidmann, in a speech titled “Trust — Prerequisite for Success of a Stable Currency,” also made veiled criticisms of ECB President Mario Draghi’s bond-purchase plan. Speaking of how the Chinese invented paper money around 1,000 A.D., he said the emperors of the time ‘knew the importance of this invention and used it richly.’  ‘They produced more and more banknotes, but unfortunately without withdrawing the old ones. The result wasn’t surprising:  Inflation.’  Weidmann said central banks mustn’t take on fiscal tasks, and voiced concern about the side-effects of ‘ultra-expansive monetary policy.’”

Tom Fairless and Todd Buell of Dow Jones:  “National authorities should bear the cost of losses in their banking industry suffered prior to the establishment of a European banking regulator, Bundesbank President Jens Weidmann said…, weighing into a debate about the extent to which Europe’s rescue fund should pay for legacy bank debts.   ‘To maintain a balance of liability and control, only risks acquired after the establishment of a common [banking] supervisor can fall under shared liability,’ Mr. Weidmann… said… ‘For legacy debts in banks’ balance sheets, those countries under whose supervision the liabilities were generated’ must still vouch for them, he said.  ‘Anything else would be financial transfers.’  With the comments, Mr. Weidmann appears to be throwing his weight behind… the finance ministers of Germany, the Netherlands and Finland, in which they said the region’s permanent bailout fund, the European Stability Mechanism, should assume only a limited burden in bank recapitalizations.  National governments should retain responsibility for issues arising from banks’ bad lending decisions before they fall under a common supervisor, the ministers said.  Mr. Weidmann stressed that the Bundesbank ‘fundamentally welcomes a European banking regulator,’ and that a banking union can be an ‘important building block’ for a stable currency union.  However, creating a banking union will take time…, adding that its primary purpose mustn’t be to mutualize risks.   Mr. Weidmann also warned that it will be ‘difficult’ for the ECB to separate monetary policy from banking supervision if it becomes Europe’s single banking regulator. The ECB has pledged to keep its monetary policy responsibilities strictly separate from its future regulatory role.”

Rainer Buergin of Bloomgerg:  “German coalition lawmakers called on Chancellor Angela Merkel’s government to ensure that big euro-region banks are compelled to pass checks before coming under European supervision, with any restructuring needed carried out at the home country’s expense.  ‘Banks that pose systemic risks are to be subjected to a stress test and restructured or liquidated at the expense of the national restructuring fund before they are included in the direct supervision mechanism,’ said the motion sponsored by Merkel’s Christian Democratic Union and their Free Democratic Party coalition partner.”

Neil Callanan and Sharon Smyth of Bloomberg report  “Angel Fernandez used to travel to the Netherlands to buy equipment for Spanish homebuilders when they were powering Europe’s third-biggest construction market.  Now he watches as buyers come to take diggers, excavators and trucks to countries where they won’t just gather dust.  Standing in a sunburned field in Ocana, a 90-minute drive south of Madrid, 41-year-old Fernandez looks on as never-used construction equipment is sold at discounts of as much as 20% through Ritchie Bros. Auctioneers Inc. Business is brisk for the world’s largest industrial-equipment auctioneer, a sign that time has run out for Spanish builders that were propped up by banks for years after the machines fell silent…  Almost half of Spain’s 67,000 developers are insolvent but not bankrupt after getting additional financing from banks, according to R.R. de Acuna & Asociados, a property consulting firm.

Mike Mish Shedlock writes What if I am wrong about Europe?  Spain, Greece, Portugal, and Italy are all on the same track and the wrong track. All need work rule reform and lower taxes. Instead, the countries have been short on productivity improvement, short on pension reform, short on work rule reform, and long on tax hikes. It is no wonder their economies are imploding. It is no wonder protests are getting louder. Yet the political class, beholden to the banks and the IMF have taken the wrong track. In the end, I highly doubt I will be wrong. In the meantime, however, Telegraph writer Daniel Hannan appears to be correct in his assessment “the tragedy is that the monetary union will limp on, condemning hundreds of millions to gradual immiseration.” I comment that it is only the Netherlands that might be able to pull out of the Euro Group. The Netherlands ETF, EWN, fell strongly this last Week on Electronics Manufacturing, PHG, Agricultural Equipment, CHN, Enerrgy, RDS-B, and Energy Services, CLB, as is seen in this ongoing Yahoo Finance Chart. ETF Trends reports Netherlands ETF Faces Transition After Election

Robert Wenzel of Economic Policy Journal provides Murray Rothbard on Schumpeter’s Theory of Business Cycles.

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