Bonds Trade Lower Introducing The Age Of Deflation …. Neoliberal Credit Finally Fails To Inflate Stocks Globally As The Nasdaq 100, Small Cap Value, Large Cap Growth, Semiconductors, And Biotech Lead World Stocks Lower

Financial Market report for the week ending October 19, 2012

1) … During the third week of October, 2012, the age of deflation commenced on the failure of neoliberal finance.
Global fiat wealth is now turning lower as not only have world stocks, VT, have turned lower, but also Aggregate Credit, AGG, is trading lower.

The Calamos Total Return Fund, CSQ, shows an evening star chart pattern, highlighting the end of prosperity. Debt deflation is underway worldwide; stocks are unable to leverage debt higher as the major world currencies, DBV, and emerging market currencies, CEW, are trading lower in value, being led lower by the commodity currencies, since the week ending September 14, 2012, as is seen in this ongoing Google Finance Chart of CCX, DBV, and CEW.  Competitive currency devaluation has been underway for two weeks now as the currency demand curve, the ratio of the Small Cap Pure Value Shares, RZV, relative to the Small Cap Growth Shares, RZG, RZV:RZV, has turned lower.

Early in the week, Total Bonds, BND, traded lower, as the 30 10 US Sovereign Debt Yield Curve, $TNX:$TYX, rose, as reflected in the Steepner ETF, STPP rising beginning September 26, 2012, as the Zeroes, ZROS, and the 30 Year US Government Bond, EDV, fell more than the Ten Year US Government Note, TLT, as is seen in this ongoing Google Finance Chart; as Junk Bonds, JNK, World Treasuries, BWX, Emerging Market Bonds, EMB, Corporate Bonds, LQD, and International Corporate Bonds, PICB, rose, as is seen in this ongoing Google Finance chart.  Distressed Investments, FAGIX, containing debt similar to the investment portfolio of the US Federal Reserve, rose to a new high of 9.46.

World Stocks, VT, and Dow Dividend, DVY, traded higher near their recent highs, and the world small cap stocks, VSS, rose to a new high, as JPMorgan, JPM, and Citigroup, C, led the Too Big To Fail Banks, RWW, and European Financials, EUFN, specifically, LYG, RBS, BCS, HBC, SAN, DB, CS, UBS, DB, NBG, seen in this ongoing Yahoo Finance Chart, as well as Argentine Banks, BBVA, BFR, BMA, GGAL, Japanese Banks, NMR, SMFG, MTU, Australia Bank, WBK, traded higher. Leveraged speculative community banks, IXG, rising to new rally highs included Canadian banks, RY, TD, and BMO.  A rising Yuan, CYB, took Chinese Financials, CHIX, and China, YAO, higher. China Real Estate, TAO, led World Real Estate, WPS, to a new high. Insurance, KIE, Pharmaceuticals, IHE, and Sin Stocks, VICEX, as well as Exxon Mobil, XOM, rose to new highs.

US Infrastructure, PKB, rose to a new high on Lumber Producers, LPX, PATK, WY, PCL, Paper Manufacturers, IP, KS, BZ, WPP, SEE, BKI, CLW, GLT, DOM, PKG, BLL, Building Supplies, BECN, MAS, TREX, NTK, APOG, HW, Home Improvement Stores, LOW, SHW, LL, HVT, PIR, Home Fixtures, LZB, AMWD, FBHS, Housewares, JAH, NWL, Textiles, MHK, Cement Manufacturers, JHX, EXP, Appliances, WHR, Business Services,TISI, XWES, FLT, NEWT, DLX, Creditors, V, MA, PRAA, CPSS, DFS, AXP, CSE, SLM, AGM, COF, NNI, EFX., and Manufacturer, GE.

China, FXI, Mexico, EWW, Switzerland, EWL, Australia, EWA, Netherlands, EWN, Turkey, TUR, New Zealand, ENZL, Phillippines, EPHE, Brazil Small Caps, EWZS, Austria, EWO, Israel, EIS, and Greece, GREK, traded to new highs.

Home Building, ITB, Steel, SLX, Energy Service, OIH, IEZ, Energy, XLE, and Specialized Semiconductors,seen in this Finviz Screener, and in this ongoing Yahoo Finance Chart, rose strongly from an oversold position. Large Cap Nasdaq, QQQ and Japanese Large Cap Growth, JKE, Internet Initiative Japan Inc, IIJI, jumped higher, taking Smartphone, FONE, Cloud Computing, SYKK, Networking, IGN, Software, IGV, and the Nasdaq 100, QTEC, higher. Cable TV Company, CMCSA, LMCA, DISH, VMED, TWC, DISCA, VIAB, jumped higher. Cement manufacturers, TXI, CX, and JHX, jumped higher. Specialty Chemical Manufacturer, WLK, jumped higher. Toy Manufacturer Mattel, MAT, jumped higher. Oil and Gas Pipeline Companies, WMB, SXL, KMP, jumped higher.

On Thursday, Reuters reported Merkel, Hollande clash on EU budget czar before summit.  Germany and France, Europe’s two central powers, clashed over greater European Union control of national budgets and moves towards a single banking supervisor before a summit of the bloc’s leaders began on Thursday.

Yet on Friday, World Stocks, VT, Dow Dividend, DVY, World Real Estate, WPS, Insurance, KIE, and the World Small Caps, VSS, fell lower, as Reuters reports Stocks slide as earnings disappoint. Wall Street trekked lower early Friday following disappointing results from Microsoft, MSFT, (which led technology lower) and McDonald’s, MCD, (which led restaurants lower), while General Electric, GE, (which led US Infrastructure lower), reported revenue that fell short of estimates.

Semiconductors, XSD, Nasdaq Smart Grid, GRID, Biotechnology, XBI, IBB, Coal, KOL, Steel, SLX, Metal Manufacturing, XME, Energy Service, OIH, IEZ, Energy, XLE, fell strongly.

Starbucks, SBUX, Standard Packaging, STAN, Royal Caribbean, RCL, fell strongly, leading Consumer Discretionary, IYC, lower.

Industrial Electrical Equipment, DAKT, ROK, BGC, AME, FELE, fell lower.

Banks, LYG, BCS, RBS, SAN, DB, CS, UBS, led European Financials, EUFN, lower, and WBK, BBVA, BFR, BMA, C, WF, SHG, KB, led World Banks, IXG, lower.

Eurozone countries, Spain, EWP, and Italy, EWI, led Poland, EPOL, Sweden, EWD, and Russia, RSX, lower, lower, while Greece, GREK, rose.

Manufacturers MWA, WTS, MTW, BEAV, CFX, KMT, SNA, MIDD, DXPE, turned Small Cap Industrials, PSCI, lower.

Cloud Computing, SKYY, turned Small Cap Technology, PSCT, lower.

Small Cap Energy, PSCE, fell lower.

Pharmaceuticals, IHE, turned lower.

US Infrastructure, PKB, fell lower on ROG, HW, HVT, GVA, ARII, FLR, BECN, GE, TTEC, EXP, CVG, TSCO, TTSI, TBI, URI, AMWD, BGG, WOR,

General Motors, GM, Tenneco, TEN, Modline, MOD, Dana Holding, DAN, Douglas Dynamics, PLOW, and American Axle, AXL, tured Automobiles, CARZ, lower.

Google, GOOG, Apple, AAPL, and Exxon Mobil, XO, led Large Cap Growth, JKE, lower.

Banks trading lower included CFR, PB, BBT, BKU, UBSI, CBSH, LION, RF, CMA, and CTBI.

India Infrastructure, INXX, India Small Cap, SCIF, India Earnings, EPI, turned India, INP, lower.

South Korea, EWY, and Taiwan, EWT, fell strongly.

Junior Gold Miners, GDXJ, Small Cap Revenue, RWJ, GCA, MGI, Retailers, ANN, TUES, MW, JOSB, GCO, BKE, DSW, ZQK, JOSB, SCS, GII, Rental Company, RCII, Personal Products, BTH, FHCO, Restaurants, FRGI, CHVY, EAT, DIN, CAKE, Small Cap Consumer Discretionary, PSCD, induced Small Cap Value, RZV, to fall more than Small Cap Growth, RZG. WD-40, WDFC, as seen in this one month ongoing Yahoo Finance Chart, has led small cap value shares, RZV, lower.

Neoliberal credit has finally failed to inflate stocks globally as the Nasdaq 100, small cap value, large cap growth, semiconductors, and biotech lead world stocks lower as is seen in this ongoing Yahoo Finance chart of JKE, QTEC, RZV, IBB, XSD.  In the last month, large cap growth, JKE, have fallen faster than the large cap dividend, DLN, and large cap value, JKF, as is seen in this ongoing Yahoo Finance Chart of JKE, DLN and JKF.  CNBC reports Google’s revenue is coming in much worse than anyone thought.
Bespoke Investment Blog reports Nasdaq losing 2012 lead fast.  Up until just recently, the Nasdaq Composite was enjoying a wide lead against the S&P 500 in terms of 2012 performance.  That lead has evaporated over the last two weeks since earnings season began.  Including today’s big decline, the Nasdaq is now outperforming the S&P 500 by just 1.35 percentage points in 2012.

This week, Commodities, DBC, USCI, traded lower..

This week, The US Dollar, $USD, UUP, traded unchanged as the Chinese Yuan, CYB, rose to new high. Doug Noland reports that for the week on the upside, the Swedish krona increased 1.75%, the Australian dollar 1.0%, the Norwegian krone 0.9%, the South African rand 0.8%, the Brazilian real 0.8%, the South Korean won 0.7%, the euro 0.6%, the Danish krone 0.6%, the Swiss franc 0.5%, and the Taiwanese dollar 0.1%.  For the week on the downside, the Canadian dollar, FXC, declined 1.4%, the Japanese yen 1.1%, the British pound 0.4%, the Mexican peso 0.1%, and the New Zealand dollar 0.1%. Chinese stocks, led by Chinese Industrials, CHII, rose 12% in the last month, finishing their rally as is seen in this ongoing Yahoo Finance Chart of chii, chix,chim,chiq,hao,caf, all on a rising Chinese Yuan, CYB.

2) … Neoliberal credit has finally failed to inflate stocks worldwide.
Doug Noland writes Markets seemed to turn more unstable this week; earnings didn’t help. We’re nowadays in the midst of “melt-up” Credit debasement, a “blow-off” top in global speculative excess, and complete policy capitulation in hope of holding the downside of the global Credit cycle at bay.

For a few years now, I’ve referred to the “global government finance Bubble” as the granddaddy of them all.  What started as excesses at the fringes of U.S. bank and junk bond finance back in the late-eighties eventually made its way to terminally infect Treasury and related debt at the core of our entire monetary system.  Global excesses, having fueled precarious Bubbles in Japan, SE Asia, Europe and the emerging economies over the years, afflicted China with its estimated population of 1.3 billion.   Today’s historic Bubble phase risks the loss of market trust in sovereign debt.  The current global “inflationist” policy regime risks being completely discredited.  And the historic Chinese Bubble risks a precarious post-Bubble day of reckoning.

Unlike the 80’s and 90’s, there’s no longer any attempt to fashion a coordinated strategy to deal with global excesses and imbalances.  Policymakers have thrown in the towel – and these days have no strategy beyond reflation and Bubble perpetuation.  U.S. policymakers pay little more than lip service to incredible federal deficits.  This, however, is actually more than is paid to the massive Current Account Deficits that have been the root cause of now deep structural global imbalances and economic impairment.  More than 25 years later, our nation’s policy prescription for unmatched global imbalances is even looser monetary policy and added stimulus for all nations, everywhere, all-the-time.

And the way I see it, the Fed, ECB and global central bankers today fight a losing battle. The mountain of global debt, securities, and derivatives, along with this destabilizing global pool of speculative finance, just inflate larger by the year – and after each policy response.  And the more outrageous the policies implemented to try to resolve each crisis, the more these desperate measures further inflate the global Bubble.  Ironically, the ongoing assurances of central bank liquidity seem to ensure an eventual crisis beyond the liquidity capacity of central banks.  Happy 25th Anniversary, you aged and ornery Credit Bubble.  They’ll be reading, writing about and studying you for at least the next century.

Doug Noland reports M2 (narrow) “money” supply declined $12.5bn to $10.182 TN.  “Narrow money” has expanded 7.2% annualized year-to-date and was up 6.8% from a year ago.

3) … In the news
Alex Kowalski and Prashant Gopal of Bloomberg report,  Housing starts in the U.S. surged 15% in September to the highest level in four years, adding to signs of a revival in the industry at the heart of the financial crisis. Bespoke Investment Blog reports Housing starts and building permits exceed forecasts. The release of Housing Starts and Building Permits for the month of September exceeded forecasts by a wide margin as both indicators rose to their highest levels since July 2008.  At current levels, Housing Starts have risen 82% from their recession lows, while Building Permits have increased by 74%.  Even after these big increases, however, both are still well below their pre-recession levels.  More noteworthy is the fact that Housing Starts are still 40% below the historical average going back to 1959, when the size of the US population was less than two-thirds of what it is now.

CNN reports Average student loan debt [in the US] nears $27,000

Ambrose Evans Pritchard writes EU leaders agree ‘fiscal facility’ plan with eye on budget union. Europe’s leaders agreed on Thursday to plans for a “fiscal facility” to help eurozone countries cope with shocks, opening the door to partial budgetary union.

Ambrose Evans Pritchard writes Germany shocks EU with fiscal overlord demand.  Germany has stated its exorbitant price for keeping Greece in the euro and agreeing to mass bond purchases by the European Central Bank.

CNN reports Euro crisis opens old wounds for Greece, Germany.

Reuters reports Merkel raises new hurdles on EU bank union

Economic Times reports Troubles grow in Spanish banking rescue
.
Peter Schwarz of WSWS reports German-French tensions dominate European Union summit.  The public clash between Merkel and Hollande is symptomatic of growing tensions within the European Union.

The Telegraph reports EU leaders agree ‘fiscal facility’ plan with eye on budget union. Europe’s leaders agreed on Thursday to plans for a “fiscal facility” to help eurozone countries cope with shocks, opening the door to partial budgetary union.

Chris Rossini writes in Economic Policy Journal 1971, The year that Nixon chose the US Dollar over gold. The U.S. was now free from the shackles of that barbarous relic. It was high time for gold to get dumped into the dustbin of history. No longer were people supposed to think of it as money. And being that gold’s industrial uses are minimal, its price was supposed to languish until the end of time.

Also of note in 1971, Merrill Lynch went public. It was only the second brokerage firm to do so. That same year, it released its “Merrill Lynch is bullish on America” ad during The World Series.
Oh…and The Nasdaq was also launched in 1971.

So as you can see, Paper Money America was about to be unleashed!

Give government a printing press, and it’ll attempt to take over the world, stick its nose into every conceivable problem that exists, and inevitably destroy the value of the paper that it prints.
And that’s exactly what happened:

  • Merrill Lynch collapsed and would have completely vanished had Bank of America not been forced to purchase it. The Bull ended up being nothing but bull.
  • The Nasdaq experienced an unbelievable boom and bust, bringing financial ruin to millions of Americans.
  • The U.S. has a military empire covering much of the Earth.
  • The government at home has reached so far into our lives that it now monitors our salt and soda ounce intake. Nothingis off limits.
  • And finally, gold did not get thrown into the dustbin of history. Its price has skyrocketed tremendously since the $35/oz. Nixon days

The day may be coming (it’s impossible to predict when) where a post will appear on EPJ titled: The return of gold money.

4) … The  age of fiat asset deflation will see the Beast System of Totalitarianism and Regionalism rise to rule the world as foretold in bible prophecy.

God’s word presents that the two current global empires, ruling with iron hegemony, the UK and the US, will fail and give way to a ten toed kingdom of regional governance, comprised of partly iron diktat and clay democracy, Daniel 2:30-33. Eventually a singular king will conquer three world regions and rise to govern all of the world’s ten regions from Jerusalem, Daniel 7:24, and Daniel 9:24-27, and Revelation 17:12. In Europe, Germany will rise to be preeminent over vassal periphery states, that is the PIIGS.

Seigniorage, that is moneyness, will no longer come from the Neoliberal Milton Friedman Free To Choose floating currency regime debt trade, as the world is passing through Peak Credit, as is seen in the chart of Total Bonds, BND, topping out, as debt deflation, that is currency deflation, is underway, with the major world currencies, DBV,  the Swedish Krona, FXS, Emerging Market Currencies, CEW, and Commodity Currencies, CCX, trading lower from their recent rally highs. Competitive currency devaluation is now underway, as is seen in the currency demand curve, the ratio of small cap value shares relative to small cap growth shares, RZV:RZG, topping out once again and now turning over. Bespoke Investment Group reports Small Caps Lag; the sell off in the Russell IWM, is -3.7% in the last month, compared to the -2.0 in the S&P, SPY, is a result of the Small Cap Revenue, RWJ, falling 4.5%, compared to the Too Big To Fail falling 0.7% in the last month; the small cap stocks are accelerated more easily and sell off more strongly on the provision and extinguishment of credit liquidity.

The recent risk on momentum rally, that came from a rally in world currencies and a fall in the US Dollar, is now off as investors are now short the Swedish Krona, FXS, resulting in derisking out of Autoliv, ALV, and Ericsson Telephone, ERIC, causing Sweden, EWD, to be a major country faller. Doug Noland writes that this week the Swedish krona, FXS, declined 1.4%, the Danish krone 0.8%, the euro, FXE, 0.7%, the Brazilian real, BZF, 0.6%, the Mexican peso, 0.6%, the Norwegian krone 0.5%, the Swiss franc, FXF, 0.5%, the British pound, FXB, 0.4%, the New Zealand dollar 0.2% and the Canadian dollar, FXC, 0.2%.

The failure of Neoliberal Finance is seen in Junk Bonds, JNK, Leveraged Buyouts, PSP, and Pimco’s Closed End Debt Funds, PFL, trading lower as well as the Steepner ETF, STPP, and rising. All currencies, including the Chinese Yuan, CYB, will be trading lower, leading fiat wealth into the Pit of Financial Abandon. Commodities, DBC, and US Commodities, USCI, are trading down from their recent rally highs, confirming that the Age of Deflation is now underway.

The world central banks ability to inflate fiat assets is over; World Stocks, VT, and World Small Cap Stocks, VSS, with the exception of Greece, GREK, Chinese Stocks, FXI, and Turkey, TUR, are trading down from their recent highs.

The new seigniorage, that is the new moneyness, will come from the diktat of regional monetary bodies, such as the ECB,  and  regional monetary popes such as Mario Draghi, as regionalism rises to replace Crony Capitalism and European Socialism, as the dynamos of global trade and corporate profitability, are winding down Neoliberalism and the dynamos of regional security, stability, and security are powering up Neoauthoritarianism.

Jesus has been at the economy of God, Ephesians, 1:10, achieving the fullness of prosperity, via moneyness which came through the global debt trade; now the global government bond bubble, BWX, is topping out.  One was free to choose, depending on one’s risk profile, to invest in Emerging Market Bonds, EMB, yielding 4.3%, or Corporate Bonds, LQD, earning 3.8%, or Municipal Bond, MUB, providing 3.0%, or the S&P, SPY, making 2.0% interest, as is seen in the ongoing Yahoo Finance Chart of EMB, LQD, MUB, SPY; but now Jesus, is pivoting the world along into austerity and debt servitude, taking the entire world down the Road To Serfdom, as stocks are now longer able to leverage debt as is seen in the Calamos closed end total return fund, CSQ, trading lower. Christ is introducing the ten toed kingdom of regional governance as foretold by the prophet Daniel in Daniel 2:30-33, via releasing the First Horseman of the Apocalypse, Revelation 6:1-2, to effect global economic and political coup d’etat by transferring the baton of sovereignty from former sovereign nation states to sovereign regions such as the Eurozone.

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