Financial Market report for the week ending December 28, 2012
1) … Stocks traded lower for the fifth day in a row on the exhaustion of trust in credit and on the turn lower in currencies world wide, this as stock traders are the most bullishly positioned in six year.
Doug Noland reported that on Friday December 28, 2012, Global central bank International Reserve Assets (excluding gold), as tallied by Bloomberg, were up $623bn y-o-y, or 6.1%, to $10.847 TN. Over two years, reserves were $1.823 TN higher, for 20% growth.
Liberalism’s finance, rallied the Morgan Stanley Cyclical Index, ^CYC, to an all time high of 1052, on December 20, 2102, which is traded by the the Global Producer ETF, FXR. which has turned sharply lower from its high of 19.69. Peak Global Production came via Liberalism’s seigniorage, that is moneyness, of Aggregate Credit, AGG, which topped out on December 5, 2012 at 111.54.
Peak Credit, can also be seen in the chart of Total Bonds, BND, which was established on December 5, 2012, at 84.97 coming through debt deflation, that is competitive currency devaluation, with the Yen, FXY, leading the Major World Currencies, DBV, lower from December 17, 2012 at 26.12, and the emerging market currencies, CEW, likely peaking on December 28, 2012 at 21.04.
Yahoo Finance Daily FX reports that the EUR/USD closed at 1.3328; and that the Euro, FXE peaked on December 20, 2012 at 131.46. The Brazilian Real, BZF, rose as Reuters reports Brazilian Central Bank sells US dollars, taking it to the middle of a broadening top pattern in its monthly chart.
The currency demand curve, which is the ratio of the Small Cap Pure Value Shares, RZV, relative to the Small Cap Pure Growth Shares, RZV:RZG, has been rising from June 2012, to a climax on December 20, 2012, when it topped out and turned lower.
Now, the world’s major currencies, DBV, have turned lower; and the Emerging Market Currencies, CEW, are peaking out; causing investors to deleverage out of Commodities, DBC, and derisk out of Stocks, ACWI. The Age of Deleveraging has commenced.
The end of the Zero Interest Rate Regime, that is ZIRP, and the end Milton Friedman Floating Currency Regime, commencing on Friday December 28, 2012, after forty one years, since its inception by Milton Friedman in 1971, when the US abandoned the gold standard for the value of its currency, which has topped out strong rallying Global Real Estate, DRW, and Global Water Resources, CGW.
The WSJ report Global currency tensions rise. Japan’s incoming prime minister fired a volley into increasingly tense global currency markets, saying the country must defend itself against attempts by other governments to devalue their currencies by ensuring the yen weakens as well. Shinzo Abe’s call comes as others including Bank of England Gov. Mervyn King warn that the world’s economic-policy makers risk becoming embroiled in currency spats that could heighten tensions among countries.
Mr. Abe on Sunday called on Japan’s central bank to resist what he described as moves by the U.S. and Europe to cheapen their currencies and noted that a yen level of around 90 yen to the dollar, it was at 84.38 in early Asian trading Monday, down from 84.26 yen late Friday, would support the profit of Japanese exporters.
“Central banks around the world are printing money, supporting their economies and increasing exports. America is the prime example,” said Mr. Abe, referring to the Federal Reserve’s policy of flooding the market with dollars by purchasing massive amounts of Treasury bonds and other assets.
“If it goes on like this, the yen will inevitably strengthen. It’s vital to resist this,” he said.
Global central bank foreign-exchange reserves expanded to $10.5 trillion by mid-2012 from $6.7 trillion in 2007, according to the International Monetary Fund, a 57% rise in less than five years and a sign of how aggressively world central banks are stockpiling other currencies in an attempt to prevent their own currencies from getting too strong in the wake of the 2008 financial crisis.
The largest increase has been in Switzerland.
It is “completely different” for Japanese companies if the dollar is in the 80-yen range, as it is now, as opposed to the 90s yen, Mr. Abe said. If the dollar “is above 85 yen, companies that haven’t been paying taxes until now [because they don’t have profit]. . .can pay taxes.”
The U.S. hasn’t explicitly sought a weaker dollar. But the effect of its policies has been to suppress its value. Most notably, the Federal Reserve’s quantitative easing programs — in which the central bank prints dollars to purchase government bonds — have the side effect of holding down the international value of the currency by increasing its supply in global markets.
Trade wars, in which countries restrict imports from other countries, were an important feature of Depression-era policies in the 1930s which crimped global economic growth. Mr. Truman said he had grown concerned that cooperation between countries on currency decisions had diminished in recent years. If it continues, he said, then “you go from a world in which there is a broad level of cooperation on monetary measures to one in which it is every man for himself,” he said.
Ambrose Evans Pritchard writes Washington has issued a blistering attack on China for persistent breaches of world trade rules and abuse of industrial secrets, accusing Beijing of failing to abide by treaty obligations.
John Rubino writes Welcome to the Currency War, Part 6: Japan gets explicit. The crucial sentence in the above article is: If the dollar “is above 85 yen, companies that haven’t been paying taxes until now [because they don’t have profit]. . .can pay taxes.”
There, in a nutshell, is why currency wars happen. Heavily-indebted governments are desperate for tax revenue, and an export sector that can’t compete because of a strong currency produces very little taxable profit. But before you write in to say that a strong currency is no barrier to profitable exports for well-run countries, note that “well-run” doesn’t apply to today’s developed world. Currency wars generally happen when corrupt, over-indebted countries can’t cover their interest expense and start looking for a way to shift the burden of their stupidity onto their trading partners. A weaker currency is only a short-term fix, but when an election approaches (and one is always approaching), short-term fixes are good enough.
For a sense of the panic that’s gripping Japan, consider what’s happening to its big electronics exporters like Sony and Sharp.
2013 is shaping up as a pivotal year, not necessarily because inflation is set to accelerate, but because virtually everyone who matters has decided to try, explicitly, to make it accelerate. This might take a while, because the ongoing contraction in Europe and failed US states like California and Illinois is profoundly deflationary. But with a few years’ hindsight we might look back on December of 2012 as the beginning of the chaotic, parabolic stage of the process
Agent P comments For the U.S., it really boils down to other countries (slowly, but surely) trading in currencies other than the dollar. No, it doesn’t happen overnight, but it can take place far more rapidly than many care to think – owing not necessarily to economic issues, but foreign policy blunders and increasing animosity among nations who are subject to our foreign policy adventures, while at the same time also forced to utilize the $USD for trading purposes. While we can threaten a handful of ‘patsy’ countries at any given time with a hint or show of carrier-group force, we cannot stop other nations from following a regional leader like China, the Soviets, Malaysia and South America, into trade agreements that circumvent $dollar hegemony.
As Inflationism transitions into Destructionism, the paradigm of global economics is transitioning into the paradigm of regional economics. Liberalism’s Crony Capitalism and European Socialism are being replaced with Authoritarianism’s Regionalism and Totalitarian Collectivism.
Credit Liquidity under Liberalism provided prosperity for many. But as moral hazard has come of age, all of humanity will be booked into Authoritarianisms’ California Hotel of austerity and debt servitude by country leaders, as they meet in summits to announce regional framework agreements, which renounce national sovereignty and pool sovereign regionally for structural reforms, wage reductions, and the establishment of public private partnerships to manage regional economics, as well as to appoint both a regional political leader, and a regional banking, fiscal and monetary pope. As US Dollar hegemony comes to an end, a Ten Toed Kingdom of Regional Governance will rise to govern mankind’s economic transactions.
Mike Mish Shedlock provides a permissions clipping from the Michael Pettis For Fee Newsletter Ponzi schemes in wealth management. It is clear that these illicit capital flow numbers are pretty significant in relation to the trade numbers. China’s trade surplus in 2010 was reported to be $183 billion, but GFI claims that Chinese illicit capital flows (I assume that most if not all represents outflows, or even net outflows) for the year were $420 billion, most of which may have been recorded as higher exports or lower imports.
Even if these numbers are way off, they still suggest that China’s real trade surplus may have been substantially higher than reported, with much if not most of the money parked offshore for safekeeping. Among other things these numbers also suggest that the sluggish import growth of the past year, which smart people like Andy Xie insist are among the many numbers that are not compatible with the high official growth rates claimed by the government, may be even lower than reported.
Obviously I am not the first person to complain about the opacity of Chinese economic data and the difficulties we often have in reconciling one set of numbers with another, but I think it is important to note that while opacity may not be a terrible problem during the optimistic up-cycle (in fact hazy data give us more leeway to daydream pleasant things), it can suddenly become a huge problem during the pessimistic down-cycle, when they don’t even constrain our nightmares. What is worse, an increase in opacity, which we are clearly seeing in the financial system, is usually a herald of bad tidings. When the economy starts to get bad, often the first impulse for many is to massage or hide the data.
I don’t think this is the end of this story. The market hasn’t yet priced in the amount of rebalancing China has yet to go through, and so it has also not priced in either the full reduction in hard commodity demand or the extent of rebalancing on China’s export competitiveness. I expect a lot more of the same story in 2013 and 2014.
Michael Pettis is one of six speakers in the Wine Country Economic Conference that he is hosting on April 5, 2013, in Sonoma, California. Mr. Pettis as one of the world’s leading experts on China and on global trade issues.
Under the table, hot money flows have driven up the Kiwi, that is the New Zealand Dollar, from 0.60 to 0.75, pushing New Zealand Shares, ENZL, to its recent evening star chart pattern, rally high. I live in Bellingham, WA, and experience hot money flow benefits coming out of the shadow Asian banking system. Carry trade investors, from all over Asia, have flocked to the pleasant marine climate of Vancouver, BC, driving up condo prices until the Canadian Dollar, FXC, became a global competitive currency loss leader along with the Japanese Yen, FXY. These economic immigrants come to Bellingham, WA, to buy cheaply priced apparel and footwear at the General Growth Properties’ Bellis Fair Mall, food products at Bakerview Fred Meyer, and gasoline at Bellingham Costco Not only has it been money printing by the US Fed, but it has also been a flood of Asian money driving Bellingham’s economy. The Bellingham Herald reports Whatcom County’s unemployment rate drops to 6.4 percent; its lowest level in nearly four years, with the private sector adding 2,400 jobs in the past 12 month
Northwest Washington’s economic activity is going to see a sharp decline, as it is based to a large extent on massive stockpiles of collateral, specifically copper in warehouses, around the world which has been used to support Asians living outside of their country of origin. The chart of copper, JJC, closed at 45.29, which is just above 45, which is the middle of a broadening top pattern seen in its monthly chart; it is as Street Authority relates, When you see the broadening top, the market will eventually drop. Copper will be dropping like a rock, and when it does, the economic immigrants will be diving for cover into their Vancouver BC condominium towers.
Zero Hedge reports Stock traders are the most bullishly positioned in six year. And Reuters reports Japan retail investors pour $2.3 billion into fund investing in North America. Japanese retail investors poured about $2.3 billion in a mutual fund that mainly invests in U.S., Mexican and Canadian shares, the biggest subscription since October 20066. I comment that the two causes of Great Depression I, were high levels of municipal debt and secondly massively speculative trading positions.
CNBC writes Investors are showing enthusiasm levels near the highs for the year – just in time for the economy to go marching off the “fiscal cliff.”
The prospect of higher taxes and tighter government spending seems not to be bothering many market participants, who in December shifted allocation from bonds into stocks.
Whether the bulls will regret their position is a matter for 2013 to decide, but the evidence for the moment shows that the luster finally may be coming off fixed income. (Read More: Vanguard CIO: Beware Bond Bubble)
“What we’ve done for four years is climb the wall of worry,” said Jim Paulsen, chief market strategist at Wells Capital Management and believer that investors fund flows “will reverse” in the time ahead.
“Next year is going to be more of a confidence-driven run, not just climbing despite concerns but really climbing because of rising confidence,” he added.
December indeed has shown investors preparing to change asset allocations.
Flows into stock-based mutual and exchange-traded funds have totaled about $8 billion so far, while bonds have taken in less than $1 billion, according to Lipper.
That reverses course from a year in which bonds have taken in about $250 billion and equities have lost more than $130 billion.
Paulsen believes that the change will continue based on two factors: Bond returns will turn negative, and investors will grow more confidence in stocks after the Standard & Poor’s 500 passes its historic high of 1,565.
“That will end the lost-decade conversation,” Paulsen said. “At the same time, bond players are not just getting a low return but taking a hit. That could be a serious change in that fund flow.”
Enthusiasm, in fact, is everywhere on Wall Street despite the hand-wringing over the “fiscal cliff” stalemate that economists think could plunge the U.S. into recession. (Read More: Market’s Solid Year Could Soon Fall Off a ‘Cliff’)
Bullish sentiment on the American Association of Independent Investors survey last week hit a 10-month high of 46.4 percent.
Investors wary of the U.S. simply have pivoted into multinational investments, with global funds taking in $9.3 billion in December as they continue to outperform domestic offerings, according to market data firm TrimTabs.
Rather than focus on the immediate danger of the Washington impasse, more seem to be taking the longer view that bonds finally are running out of steam and the Federal Reserve’s money printing is forcing cash into riskier assets. (Read More: Central Banks: How They Are Ruling the Financial World)
“One of today’s greatest market inefficiencies may stem from the scarcity of capital devoted toward long-term investing,” Savita Subrmanian, equity and quant strategist at Bank of America Merrill Lynch, said in an analysis.
“Investors overly focused on the lack of near-term macro visibility may be failing to take advantage of today’s depressed valuations and bearish sentiment, which are laying the groundwork for the next secular bull market in equities,” she added.
Subramanian also expects a change in fund flows due to the bond market reversing course.
Along with a 1,600 price target for the S&P 500 in 2013, she expects the 10-year Treasury yield to hit 2 percent.
The higher yield would come about because of a decline in bond prices, a phenomenon that could chase investors who believe the mild coupon won’t compensate for the price decline.
At the same time, investment pros continue to tout the stocks-are-cheap theory, reasoning that the current average price of 13 times forward earnings is still well below average.
“While there’s no guarantee that history will repeat itself, it does add confidence to our Investment Policy Committee’s forecast of a near-10 percent advance in the coming year to the 1550 level,” said Sam Stovall, chief equity strategist at S&P.
Of course, the biggest worry when sentiment runs this high is that it will get overdone quickly and investors hopping aboard will do so after the best gains have been realized.
Add in the unpredictability of the fiscal cliff talks, which have kept stocks in a trading range, and it’s causing optimistic investors like Paulsen to add at least a note of caution.
“If you go over (the cliff) at the end of the year those bullish numbers could go away,” he said. “Short terms is negative right now. Still, the markets are holding up.”
On Monday December 24, 2012, World Stocks, VT, traded decisively lower from their December 20, 2012 high, on the exhaustion of the world central banks’ monetary authority.
All forms of fiat wealth, stocks, bonds, commodities and currencies, traded lower on Monday December 24, 2012; while Gold, GLD, rose slightly in value; the age of the investment demand for gold has started. Fiat wealth began to die on December 20, 2012, and thus it can be said the fiat money system began to die as well. Money as it has been known is starting to die. The diktat money system is starting to rise in Europe to replace the fiat money system; diktat will serve as currency, credit and wealth.
On Wednesday, December 26, 2012, Inverse Volatility, ZIV, traded lower; and Volatility, ^VIX, traded by UVXY, and VXX, seen in this combined Finance chart continued their rise higher from December 19, 2012 as World Stocks, VT, traded lower again.
The Business Super Cycle has transitioned into Kondratieff Winter, and now it is prime time for short selling.
The AP reports It’s the worst shopping season since 2008, worried shoppers let down retailers this holiday season. Sales of electronics, clothing, jewelry and home goods in the 2 months before Christmas increased only 0.7% compared with last year, the worst year-over-year performance since 2008.
Retail stocks, XRT, traded lower; these went ex-dividend, December 21, 2012, and are a group represents an excellent short selling opportunity; the industry leaders, seen in this Finviz Portfolio, such as ROST, have been selling off strongly for since September 14, 2012. The Yahoo Finance Industry Center reports the Footwear and Apparrel Sector, traded down strongly with KORS, SSI, COH, RUE, ANN, JNY, SHOO, and ANF, falling strongly. And Internet Retailing, FDN, traded lower with Internet Amazon, AMZN, Blue Nile, NILE, and Priceline, PCLN, down sharply.
Both Small Cap Consumer Discretionary, PSCD, and Consumer Services, IYC, traded lower. Toy Manufacturer, Mattel, MAT, was a market loss leader, trading lower. For the last six months, it had been a Consumer Discretionary, VCR, leader as is seen in this Yahoo Finance chart.
The failure of Liberalism’s finance is also seen in Large Cap Growth Companies, JKE, trading lower; this includes companies from sectors such as Energy, XLE, Energy Service, OIH, Steel, SLX, Semiconductors, XSD, and Biotechnology, XBI and Corporate Spin Offs, CSD, trading lower.
This week, Transport Stocks, IYT, are now leading Industrial Stocks, IYJ, lower, with Airlines, FAA, traded lower. With both Transports and Industrials trading lower, Dow Theory communicates that a bear, not a bull market, is underway. Confirmation of the start of a global bear market comes from Consumer Staples Stocks, KXI, seen in this Finviz Screener trading lower.
The US 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, steepened, beginning in early December 2012, as is seen in the chart of the Steepner ETF, STPP, steepening, as bond vigilantes gained control of the Ten Year US Government Interest Rate, ^TNX, calling it higher from 1.6% to its current rate of 1.7%, with the result that the 10 Year US Government Notes, TLT, have fallen 0.8%, and the 30 Year US Government Bonds, EDV, have fallen 1.2%, in December 2012.
A higher 10 Year US Government Note Interest Rate, ^TNX, is highly destructive to dividend paying stocks across the board. The JPMorgan Alerian MLP Index ETN, AMJ, traded lower, which includes the mammoth Kinder Morgan Energy Partnership, KMP, which traded lower. High dividend paying energy pipelines cannot resist the shift out of Inflationism and into Deflationism. US Preferred Stocks, PFF, another high dividend payer, is topping ou,t as is PowerShares KBW Premium Yield Equity REIT, KBWY. Emerging Market Bond, EMB, is moving along an ascending wedge to what is likely to be a soon coming top. The interest rate sensitive Utilities, XLU, traded 0.9%, lower. And Vanguard Dividend Appreciation, VIG, traded lower for the fifth consecutive day. Not only are the world central banks’ monetary policies unable to sustain global growth and corporate profitability; they are terribly destructive to dividend paying stocks.
Bond vigilantes, have called interest rates on World Treasury Bonds, BWX, higher, as the world central banks’ monetary policies of credit liquidity, amount to unlimited quantitative easing, turning “money good” sour, which have thus spoiled profitable stock investing.
The fifteen banks seen in this Finviz Screener, pose Global Systemic Risk, and are likely to be faster fallers than the National Bank of Greece; these include BAC, C, BCS, LYG, RBS, WBK, SAN, DB, IBN, HDB, IBN , MTU, SMFG, MFG and NMR. They make for excellent short selling opportunities, especially, NMR, and BAC.
The US Dollar, $USD, DXY, UUP, traded unchanged; but the Yen, FXY, plummeted again to a two year low. FT reports Japan signals rise in borrowing. Japan’s new finance minister has signalled that the government will borrow to boost the struggling economy, as Prime Minister Shinzo Abe unveiled a “crisis beating” cabinet on Wednesday. At a press conference following his appointment as finance chief, Taro Aso announced he would issue bonds and lift a cap on new debt for the 2012 fiscal year. “We will not stick to the debt cap of Y44tn ($514bn) [for the year through to March],” Mr Aso said. The debt limitation was introduced by the previous Democratic party administration, which was defeated in a landslide by Mr Abe’s Liberal Democratic party two weeks ago.
Mr Abe on Wednesday unveiled a cabinet of close allies and policy experts to push his agenda of economic recovery, just hours after being formally appointed as the country’s seventh prime minister in six years.
He has vowed to create a “crisis beating government” to tackle the deflation that has dogged Japan for more than a decade and also the strong yen. Mr Abe said he had instructed his cabinet to do their utmost to achieve economic recovery and reconstruction after last year’s devestating earthquake, and to ensure national security … “I will direct the energies of my entire cabinet towards implementing bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and I aim to achieve results with these three pillars,” Mr Abe said.
He has pledged to reflate the economy through fiscal stimulus and monetary easing. He has also called on the Bank of Japan to carry out “unlimited easing” and warned that the central bank risks losing its independence – through legislative changes – if it does not introduce a 2 per cent inflation target
Mike Mish Shedlock writes The nature and origin of Japan’s crisis. Japan’s crisis is not deflation as the economic illiterates suggest. Rather, Japan’s problem is a debt-to-GDP ratio of 230%, caused by economic illiterates attempting to defeat deflation. It’s a mad, mad world with monetarist fools in complete control of the Fed, the Bank of England, and the ECB. If prime minister Shinzo Abe gets his way (and I suggest he will), Japan will lead the way with fiscal lunacy and the Bank of Japan will follow suit with massive monetary recklessness.
On Thursday December 27, 2012, Breakout reports Investors, consumers, even Starbucks urge Washington to make a deal. Volatility is creeping higher and stocks are lagging today as the “fiscal cliff” drama weighs on confidence. Reuters reports US poised to go off ‘fiscal cliff’ – Senator Reid says.
Automobiles, CARZ, rose strongly on rising General Motors, GM, as World Shares, VT, traded up slightly, but nevertheless, down now four days from its December 20, 2012, ex-dividend high of 49.61
The Yen, FXY, continued lower today. Small Cap Value Shares, RZV, lost strongly and Small Cap Pure Value Shares, RZG, lost moderately, thus the Currency Demand Curve, the ratio of the two, communicates a lessening of demand for currencies: carry trade investing in the World Major Currencies, DBV, and Emerging Market Currencies, CEW, are starting to unwind, and the US Dollar, $USD, UUP, is trading up. The world is passing through the Age of Prosperity into the Age of Deflation, and as a consequence Democracy is giving way to Regional Governance, as Choice gives way to Diktat.
Dow Theory presents that a global bear market is underway, as both Transportation Shares, IYT, and Industrials, IYJ, traded lower together from recent market tops as is seen in their combined chart.
Inverse Volatility, ZIV, traded lower. Volatility,^VIX, rose higher, taking UVXY, and VXX, higher.
Briefing.com reported that Bankia fell strongly following an announcement that the troubled bank, which is scheduled to receive EUR18 billion in bailout funds, has a negative value of EUR4.2 billion due to worse than expected losses on toxic real estate investments. Bankia, Banco Santender, SAN, and the National Bank of Greece, NBG, led European Financials, EUFN, Spain, EWP, Italy, Greece, GREK, Italy, EWI, and Europe, VGK, as well Austria, EWO, Poland, EPOL, Netherlands, EWN, and Sweden, EWD, lower, as is seen in this ongoing Yahoo Finance chart. European Shares, VGK, ended the week 1.1% lower.
Deutsche Bank, DB, led Germany, EWG, lower.
Swiss Banks, UBS, CS, led Switzerland, EWL, lower.
UK Banks, LYG, BCS, HBC, RBS, led the UK, EWU, lower.
Canadian Banks, BNS, RY, BMO, led Canada, EWC, lower.
Argentina Banks, BFR, BMA, GGAL, BBVA, led Argentina, ARGT, lower.
The US Dollar, $USD, UUP, traded unchanged. Currencies falling included the Yen, FXY, 2.0, the Mexico Peso, FXM, 0.8, the Canadian Dollar, FXC, 0.4, the New Zealand Dollar, BNZ,, 0.4, the Australian Dollar, FXA, 0.2. Currencies rising included, the Brazilian Real, BZF, 1.3, the Indian Rupe, ICN, 0.8, the Swedish Krona, FXS, 0.6, the South Korean Won, SKW, 0.4, the Euro, FXE, 0.2, and the Swiss Franc, 0.2.
Total Bonds, BND, fell 0.5%, wiping out all gains made since early July 2012, Spin Offs, CSD, 1.7%, Leveraged Buyouts, PSP, 0.9%, Junk Bonds, JNK, 0.3%. The global debt bubble is just now starting to burst as is seen in the ongoing Yahoo Finance chart of Distressed Investments, FAGIX, like those taken by the US Federal Reserve under QE!, and .JNK, PSP, CSD, MUB, EDV, TLT The global credit system is going to experience a destabilizing bout of derisking and deleveraging
Bespoke Investment Group relates US Investors Get A Lump Of Coal. The US, SPY, is one of just three country ETFs trading below their 50-day moving averages. I relate that Liberalism’s final bout of easing gave strong moneyness not only to Europe, VGK, and Asia, EPP, but also to Emerging Market Leaders such as Mexico, EWW, the Phillippines, EPHE, Turkey, TUR, and Thailand, THD. And I say that the weekly chart of the S&P 500, SPY, shows that it entered into an Elliott Wave 3 Down, closing at 140.03, after having made an Elliott Wave 5 Double Top High in September 2012.
US stocks, VTI, slid lower on the diminishing likelihood of a budget compromise before the year-end. During the day news reports flew that President Obama would propose a scaled-back budget package later in the day as he planned to meet with House GOP members after the markets closed.
Too Big To Fail Banks, RWW, fell 2.1, Regional Banks, KRE, 1.8, leading US Shares, VTI, 2.0%, Dow, DIA, 2.0%, Nasdaq 100, QTEC, 2.0%, Russell 2000, IWM, 2.0%, S&P 500, SPY, 1.9%,
Energy, XLE 3.1, PSCE 2.9, OIH 2.6, IEZ 2.6
Airlines, FAA, 2.4, Retail, XRT, 2.2, Consumer Services, IYC, 2.0, Global Producers, FXR, 2.0
Technology, SKYY 2.3, IGV 2.0, IGN 1.6, XSD, 2.0
Biotechnology, XBI 2.2, IBB 2.1
Metal Manufacturing, XME 1.8
Homebuilding, ITB, 1.8
Printed Circuit Board Manufacturers JBL, FLEX, traded lower
Chemical Manufacturers, seen in this Finviz Screener, traded lower
Dividend Payers, XLU 2.4, XPH 2.3, IHE, 2.0, IYZ 1.9, IST 1.6, and VIG, 1.9
Small Cap Pure Value, RZV 2.2, Small Cap Pure Growth, RZG, 1.2; the former falling more than the latter suggests that global debt deflation, that is global currency deflation is underway. Large Cap Growth, JKE, 2.1, Large Cap Value, VTV, 2.0 Closed end Equity, CSQ, traded 1.5% lower; and Closed End Debt, PFL, traded 0.8% lower. establishing that stocks are unable to leverage over debt.
2) … The real estate market is finally seeing an upturn due to the huge increase in the M2 money supply and ongoing low mortgage interest rates.
Doug Noland reported that on Friday December 28, 2012, the M2 narrow money supply jumped another $36.3bn to a record $10.391 TN. Narrow money has expanded 8.0% ($755bn) over the past year. I relate that the increase of M2 Money Supply and lower interest rates have finally turned around the real estate market.
Evidence of a turnaround in the housing market comes from Reuters reporting It’s the ninth straight month for rising home prices, S&P reports. Single family home prices rose in October for nine months in a row. And Eric Pryne of The Seattle Times reports Seattle area sees surge in new homes. After a long, recession-induced hiatus, Seattle-area builders are starting to build houses again. It’s another facet of the local real-estate market’s modest recovery in 2012. Sales volume is up, in part because of record-low interest rates. Prices have bounced back from last winter’s post-bust lows. Experts generally anticipate more of the same for 2013. New home construction is on a pace this year for its best showing since 2007. Builders and analysts expect that surge, too, will continue into the new year. “I don’t know what’s driving it, pent-up demand, or job growth, or something else, but the market is strong. Land prices are climbing,” says Bill Hurme of Kirkland new-home marketing firm TeamBuilder JLS. Through October, local governments in King County had issued about 3,300 building permits for new houses, the U.S. Census Bureau estimates. That’s up 36 percent from 2011, and up a whopping 99 percent from 2009, when new construction hit bottom. It’s still nowhere near the heated pace of the pre bust years, local governments issued more than 4,600 single-family permits during the first 10 months of every year from 2002 through 2007. But builders aren’t complaining. Observers attribute the resurgence in home building to several factors, including at least two that are particular to this recovery. While overall home sales are up, the number of houses listed for sale, old and new, has hit its lowest level since at least 1999. That’s partly because many homeowners and potential sellers still owe lenders more than their houses are worth. “The builders can sense what everyone else can sense, that there’s not a lot of inventory out there,” relates Seattlebubble.com.
Jody Shenn of Bloomberg reports Sales of U.S. backed mortgage bonds, MBB, soared to a three-year high as steps by the Federal Reserve and Obama administration to make homeownership more affordable propelled a 34% jump in refinancing. Issuance of securities guaranteed by government supported Fannie Mae and Freddie Mac or U.S.-owned Ginnie Mae has climbed to $1.72 trillion, compared with $1.22 trillion last year and $1.73 trillion in 200.9 With weekly rates on 30-year home loans falling to record lows eight times since July, the first increase since 2009 in refinancing has driven total lending to almost $1.8 trillion this year, double a forecast from the Mortgage Bankers Association in October 2011. The Fed, the biggest buyer in the $5.2 trillion market, has purchased about $500 billion of the debt in 2012”
3) … Finviz Portfolios for one’s short selling consideration
AP reports Fund Managers: 2013 stock outlook remains positive. In today’s uncertain environment, stock mutual fund managers acknowledge there’s reason for investors to be cautious. But they remain optimistic that there will be significant rewards for staying invested in stocks.
But I recommend that the investor dollar cost average into the physical possession of gold bullion and possession of gol at Bullion Vault and Gold Is Money, and that institutional investors start short selling immediately.
a) … Fast Falling ETFs, … PSP, IGN, IBB, KBWY, RZV, QQQX, FAA, CARZ, BJK, CSD, TAN, FXR, TAO, DRW, URTY, SPHB, XRT, COPX, PSCI, VIG, WOOD, IYC, ZIV
b) … Fast Falling Countries, … EIRL, EPHE, EPOL, EWO, EWW, SCIN, THD, TUR, HAO, ENZL, EWY, EWT
c) … Fast Falling Banks, … BAC, C, BCS, LYG, RBS, WBK, SAN, DB, IBN, HDB, NMR, MTU, SMFG, MFG
d) … Fast Rising 200% Proshare Bear Market ETFs, … EEV, BIS, FXP, SKF, SQQQ, REW, SSG, SRS, SRTY, EFU, SMK, SCC, TBT
e) … Fast Rising 300% Direxion Bear Market ETFs, … DPK, EDZ, TZA, TECS, YANG, SOXS, FAZ … combined chart
f) … Slow and steadily rising precious metal ETFs, … FSG, UGL, AGQ, NUGT … combined chart
All of these, can be seen here on my Stockcharts.com ETFs To Short Sell And Bear Market ETFs To Invest In; a list which I will keep active to 2-1-2013.
4) … Best news and commentary of the Web
Postings from Dollar Collapse
The structural endgame of the fiscal cliff – Peak Prosperity
The echo housing bubble across the United States – Dr. Housing Bubble
Home prices rose for ninth straight month: S&P – Yahoo! News
Behind the “housing recovery” – Agora Financial
Unsound Money Jeopardizes Constitutional Rights – Macro Analytics
Consumers Love ‘Imaginary’ Money! – HoweStreet.com
Doug Casey on the Morality of Money – Casey Research
Uncovering The Federal Reserve – Liberty Crier
Currency Cartel: Counterfeiting Risk-Free – Gordon T. Long
2012 Calm Before the Storm – Gordon T. Long
Egon von Greyerz Interview – King World News
Gerald Celente Interview – King World News
Postings from Economic Policy Journal
Christmas in Rhamaland. – Robert Wenzel Chicago is a city with some of the toughest gun laws in the country. CBS Chicago reports One person was killed and 13 wounded in gun violence over the Christmas holiday, including an 11-year-old boy grazed by a bullet and a man who was shot to death during a dispute in the Englewood neighborhood.
Postings from The Guardian
Portugal to hold fire-sale of state assets – Giles Tremlett State broadcaster could be privatised in move seen as attempt by Lisbon government to impress lenders
Postings from Reuters
General Dynamics, Huntington Ingalls win huge U.S. submarine orders The U.S. Navy last week awarded submarine contracts worth up to $4.5 billion to General Dynamics, GD, and Huntington Ingalls Industries, HII, securing the funds from automatic budget cuts if Congress cannot reach agreement on other ways to reduce U.S. deficits. The Navy awarded General Dynamics a five-year contract valued at up to $1.99 billion if all options are exercised, for research and development work on a new submarine to replace the current Ohio-class vessels, which carry nuclear weapons. It awarded a separate contract worth nearly $2.5 billion for construction of two smaller Virginia-class submarines, work that will be split between General Dynamics’ Electric Boat division, based in Groton, Connecticut, and Huntington Ingalls’ Newport News shipyard. Connecticut Representative Joe Courtney welcomed the contract news, saying it would help stabilize the local workforce and ensure continued production of submarines, which he described as “a key component of our national security.”
Auto sales expected to end the year strong. U.S. auto sales are expected to show a rise of 9 percent for December, capping off the best year for the industry since 2007, fueled by easier access to credit, rising home prices and pent-up demand. But when major automakers report December sales next Thursday, a strong end to the year could be overshadowed by concerns that consumers will curb spending in January due to the “fiscal cliff.” U.S. consumer confidence fell to a four-month low in December on worries over the $600 billion in automatic spending cuts and tax increases that take effect unless Congress acts to stop them. Overall, 2012 sales are expected to finish at 14.5 million vehicles, more than 13 percent higher than the previous year. This marks the third straight year that the industry has posted a double-digit sales gain.
Postings from The California Beach Pundit
The Vix Index is a good proxy for the market’s level of fear and uncertainty, and the 10-yr Treasury yields is a good barometer of the market’s expectation for future economic growth. The Vix is elevated today, at just over 20, while the 10-yr Treasury yield is extremely depressed, at 1.7%. As the ratio of the two, shown in the chart above, moves up, the market is become more nervous and unsure about how weak the economy is going to be in the years to come. The outlook today isn’t as bad as at over times of crisis (e.g., the three Eurozone sovereign debt crises, and the Lehman Bros. collapse), but it ranks pretty high compared to other crises in the past. There’s little doubt that the market is very troubled and not at all confident that the economy is going to be growing much in the future.
Postings from The Worden Report
Dr. Worden writes Pot in Colorado A pretzel in American Federalism. Moving beyond the “federal-state” twist in the pretzel, it is also the case that the prohibition on the growth or sale (but not possession and use!) of pot in Douglas county conflicts with the result of the referendum, which was Colorado-wide. Jack Hilbert, chair of the Board of Commissioners in Douglas, said, “Our county has never passed or supported anything regarding the legalization of marijuana. We tend to be very conservative.” However, the legalization proposition received 46%–nearly a majority!—in Douglas. Moreover, is not Douglas part of Colorado and therefore bound to the will of the majority? Whereas Colorado is a semi-sovereign republic within the U.S., Douglas County is itself a legal creature, or subdivision, of Colorado. To view Douglas in Colorado as akin to Colorado in the U.S. would be to commit a category mistake. This is not to say that this must be so.
Drawing on the federal theory of Althusius, a German political theorist and lawyer whose Political Digest was published (in Latin) in 1604, we can extend American federalism to down to the county and even the city level. Althusius theorized that individuals could be members of guilds and villages, and the latter two, as federations of the individuals, could in turn be members of province or regional federations. These federations in turn could be the members of kingdom-level federations, which in turn could be the members of an imperial federation. Althusius had the Holy Roman Empire in mind as a practical example of an imperial federation. The important point about this theory is that every level of socio-political association is isomorphic (i.e., having the same form, namely federal).
In the case of Colorado (and the other American republics that are members of the U.S.), applying Althusius’ theory would mean that Douglas, as a county/province/region, would be in modern terms “a state” within Colorado, just as Colorado is a state within the United States. To get the framework down, Douglas corresponds to Althusius’ province level, while Colorado is kingdom-level and the U.S. is imperial in scale and political type (i.e., consisting of kingdom-level polities). It is important to note that the kingdom-level being referred to here is in the early-modern rather than medieval sense. Hence, I am referring, for example, to polities such as Britain rather than England, and the Netherlands rather than Holland. The American republics were crafted out of that mold (i.e., early-modern kingdom-level), and the U.S. itself was viewed as an empire. Hence, the enumerated powers of the U.S. Government came from the imperial powers of the British monarch in the British Empire, rather than the legislative powers of the House of Commons in the host kingdom.
Applying Althusius’ federal theory, Douglas would be a semi-sovereign federation of towns and cities within Colorado. Douglas would thus be able to counter Colorado’s law within the confines of the county. In diverse large states like California, Illinois, Florida and New York, extending federalism down to the county level would enable a better tailoring or fit of law to the preferences of the people. In Illinois, for example, ideological preferences in Chicago in the north are quite distinct from those in Carbondale in the south. The same can be said of those in New York City and Buffalo, and Miami and Jacksonville.
In short, American federalism can be both straightened out by having everyone “draw inside the lines assigned” and extended by states becoming federal systems themselves. The county executives could sit in the state senates, which would then be distinct from the lower houses, which represent the people. Similarly, the governors could sit in the U.S. Senate (which would resemble the European Council), while the U.S. House represents the people directly. Better and more federalism would match or allow for the inherent diversity that exists especially between states but also within at least some states. In philosophical parlance, it could be “turtles all the way down” in terms of “isomorphic federalism” (trying this expression out at a dinner party would not exactly get you more invites). Put another way, as of the end of 2012, we should have been seeing much more legislative diversity—a bricollage or quilt of sorts—across the continent, and even within our various fifty United States. The sheer strangeness of this expression—a rather common one in the early U.S.—may point to pent-up demand for various positions on ideological-related issues like pot, abortion, and gay marriage within the empire.
In other words, we should have been seeing much more legislative activity on significant issues at the state level even though two states had legalized pot and five had legalized gay marriage. Why, for example, had pot not been legalized in Oregon, or at least in northern California? Why had not more blue states, such as Illinois, legalized gay marriage? Just as prices have a habit of being “sticky” in going down while quite easily going up, the one-size-fits-all nature of American “federalism” had come to eclipse or even snuff out diversity expressed legislatively on the state level.
Please consider that Douglas County, CO, is a Creative Zone, similar to Broomfield-Boulder, CO, and San Jose, CA, where highly creative people come to work and live. Its major employers include Information Handling Services, Liberty Media, Dish Network, TW Communications, CH2M Hill, and Western Union.
Douglas County, Colorado, exemplifies the very zenith of prosperity that has come from Liberalism. It is a wealth county, a conservative county, and a Republican county; it has been a dynamic expression of Liberalism’s seigniorage awarding meritocracy. This in contrast to Greece, which is now a technocratic government expression of Authoritarianism’s seigniorage aid, which has come to a nation that The Economist Magazine relates in article Greece’s agony, what have we become, is characterized by socialist pork and patronage.
Wikipedia relates Douglas county is located midway between Colorado’s two largest cities: Denver and Colorado Springs. The United States Census Bureau that the county population was 285,465 in 2010 census, a 62.4% increase since the 2000 census, making Douglas County one of the fastest growing counties in the United States. Most residents commute to workplaces elsewhere in the metropolitan area outside of the county. It is comprised of wealthy census-designated places, CDP, as well as towns Castle Rock, Parker, Stonegate, Lone Tree, Larkspur, Castle Pine North, and Highlands Ranch. The median income for a household in the county was $82,929. Douglas County had the highest median household income of any Colorado county or statistical equivalent in 2000. SchoolDigger.com ranked Douglas County School District No.1 in the Denver Metropolitan Area and No.12 in Colorado based on 2009 test scores. (School district rankings were determined by averaging the rankings of individual schools within each of the 122 districts evaluated). Source: National Center for Education Statistics, U.S. Dept of Education, and Colorado Department of Education. The county is 92% white and there were 60,924 households out of which 47.2% had children under the age of 18 living with them, 73.8% were married couples living together, 5.7% had a female householder with no husband present, and 18.2% were non-families.
We are witnessing the fulfillment of bible prophecy of Daniel 2:30-45 and Revelation 13:1-4, where the Sovereign Lord God, communicates his Sovereign Will for the termination of human political and economic experience, by appointing His Son, Jesus Christ, as Sovereign Administrator, for various dispensations, that is epochs or eras of time, Ephesians 1:10.
Daniel 2:30-45 provides the Statue of Empires. There has been, and will continue to be a succession of beastly world empires or kingdoms. These have included Babylonian, Medo Persian, Greek, and Roman. Beginning in the late 1700s, through Federalism, 50 individual states in North America coalesced into a Federal State, and exercised US Dollar hegemony throughout the world; this as the British Empire declined from global dominance. A Ten Toed Kingdom of Regional Governance is now forming out of the prolificacy of the Mediterranean countries of Portugal, Italy, Greece and Spain, that is out of the PIGS. This monster is the Beast Regime of Regionalism, Totalitarian Collectivism, and Authoritarianism, that is rising in power, replacing Liberalism, as foretold in Revelation 13:1-4.
As the world processes through Peak Credit, Inflationism is transitioning to Destructionism. Socialists would love to see the right of personal property done away with and an egalitarian state established; and Libertarians would love to see a sound commodity money system established, accompanied by the right to use private property uninhibited by the state.
Yet there is no human action, providing either of those alternatives, as there is only fate operating to bring in a new totalitarian and fascist order that will manifest regionally. Destiny, Revelation 1:1, is effecting a global economic and political coup d’etat to transfer the baton of sovereignty from nation states to regional authorities, such as the Troika and the ECB, Revelation 6:1-2. These regional sovereigns will provide the seigniorage of diktat, that is the moneyness of diktat. Under the soon coming diktat money system, diktat serves as money, credit and power.
Sovereignty begets seigniorage. Under Liberalism, sovereign nation states served as the bedrock for the seigniorage of central bankers, such as Alan Greenspan and Ben Bernanke, as well as Investment Banking’s unsung champion James Dimon, CEO of JPMorgan, JPM. Under Authoritarianism, regional governance will serve as the foundation for the seigniorage of monetary popes, such as Mario Draghi.
Awareness finally set into the psyche of Liberalism on Friday December 27, 2012, that insolvent European sovereigns, and their insolvent banks cannot support ongoing economic activity.
The strong fall lower in Bankia following an announcement that the troubled bank, which is scheduled to receive EUR18 billion in bailout funds, has a negative value of EUR4.2 billion due to worse than expected losses on toxic real estate investments, reported by Briefing.com, together with Bank Of America, BAC, and JPMorgan, JPM, trading lower on the failure of Cliff Talks, served as the pivotal event in terminating Liberalism, and serve as one of many key events quickening Authoritarianism. The dynamos of corporate profit and global growth, that have been operating so strongly under the Milton Friedman Free To Choose Floating Currency, and Liberalism Regime, are winding down. And now, the dynamos of regional security, stability and sustainability, are winding up the Mario Draghi Regionalism, Totalitarian Collectivism, and Authoritarianism Regime.
Liberalism was based upon investment schemes such as the repeal of the Glass Steagall Act, and unlimited quantitative easing. Authoritarianism is based upon totalitarian and fascist schemes such as Greece Bailout I, II, and III, and technocratic government featuring austerity and debt servitude.
Insolvent sovereigns and their insolvent banks have neither sovereign authority, nor monetary authority; all the PIGS, use proxy sovereign and monetary authority, they use that of Mario Draghi to obtain seignorage for their fiscal needs; and in so doing, these have brought about the end Liberalism, through the peaking out of debt, AGG, currency, DBV, and fiat investments, VT.
Greece is no longer a sovereign nation state, rather it is a client state that exists in a region of economic governance overseen by the Troika and the ECB. A European Super State is forming where the ECB is sovereign over all in Euroland. Soon, every one of the PIGS, will be satellite peripheral appendages to Sovereigns in Brussels and Berlin.
Greeks cannot be Germans. There is an ethnic, cultural and historic divide between Nordic and Latin Europe, yet the Greeks and the Germans will be one, all living together in austerity and debt servitude, under true European economic governance.
The choice of investments is being replaced with the diktat of authoritarians. Liberalism provided wildcat finance, a Doug Noland term; but Authoritarianism provides wildcat governance where leaders bite, rip and tear one another, and only the most fierce rise to be the top dogs. When full blown, Authoritarianism will feature three beasts to rule mankind, a beast system, Revelation 13: 1-4, a beast ruler, Revelation 13:5-10, and a beast banker, Revelation 13:11-18, all providing the seigniorage, that is the moneyness, of diktat.
Peak Credit was a four month process that began with of the topping out of the Canadian Dollar, FXC, a Commodity Currency, CCX, in late December 2012, on the strong sell off of the Junior Gold Mining Stocks, GJDX, and selected shares within the North American Basic Material Stocks, IYM. And it was the sell off of the natural resource Small Cap Canadian Shares, EWC, that caused debt deflation and loss of confidence in the Canadian Dollar, FXC. The age of putting money at risk to develop industrial metals, energy reserves, and precious metals is over and done. Liberalism’s Seignior of Money, Milton Friedman, and his banker and floating currency regime, is history; his call to Free To Choose, is the epitaph on the tombstone of Liberalism. Authoritarianism’s Seignior of Diktat, Mario Draghi, and his beast and diktat regime is the future; his call to Austerity and Debt Servitude is the model that will be replicated in all of the world’s ten regions and in all of mankind’s seven institutions.
Stephen Fidler writes in the WSJ, July 26, 2012 marked the most important development of 2012. Mario Draghi, president of the European Central Bank, makes a promise. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,” he told an audience in London. The elaboration on September 6 of this pledge, the Outright Monetary Transactions, OMT, program of government bond buying, was viewed as convincing enough to lift doubts, about whether the financing troubles of Spain and Italy would force them out of the euro zone.
The global risk on momentum debt trade drove up Aggregate Credit, AGG, from 1971 to December 20, 2012. Now, investors are selling out of the risk intensive basic material country stocks, such as Canada, EWC, and the Small Cap Energy Shares, PSCE, and as result the Canadian Dollar, FXC, is falling in value. Canadian Shares, EWC, have lost their seigniorage, that is the seigniorage of investor’s choice.
The seigniorage, that is the moneyness of the Major World Currencies, DBV, and the Emerging Market Currencies, CEW, is ebbing away. And the Emerging Market Mining Shares, EMMT, and the Emerging Market Financial Shares, EMFN, are topping out. and will soon be losing their seigniorage, that is their moneyness, causing the leading Emerging Market Small Cap Stocks, EWX, to lead Emerging Markets, EEM, lower. Banks, BFR, BMA, GGAL, BBVA, in emerging market Argentina, ARGT, that were run up in value in Liberalism’s final risk on rally, are going to suffer a massive and quick loss of value.
The seigniorage of diktat is rising, as the diktat money system is coming on line to replace the fiat money system.
At the Peak Fiat Wealth of Liberalism, the national sovereignty of countries and their central banks gave seigniorage, that is moneyness, to all kinds of financial instruments with Energy Partnerships, AMJ, Small Cap Industrials, PSCI, Small Cap Consumer Discretionary, PSCD, and especially Small Cap Pure Value, RZV, winning carry trade investments from investors worldwide.
Doug Noland relates in 2012 In Review, A critical facet of the “right tail” scenario unfolded before our eyes: the historic Bubble strengthened and broadened, global risk market prices inflated and risk premiums deflated – even as the economic backdrop turned increasingly problematic. The U.S. economy and corporate profits disappointed in 2012, while stock prices posted the strongest gains since the policy-induced rally of 2009. The German economy disappointed, although slightly positive GDP equated with a 29% gain in the DAX equities index. The French economy badly disappointed, so the CAC40 was limited to just a 14.6% advance. The Italian economy faltered, yet stocks were up almost 8%. Spain was a near disaster; stocks fell a mere 5%. The big divergence between fundamentals and stock prices was not limited to the U.S. and Europe. India’s growth slowed sharply, while the Sensex Index gained about 26%.
He also remarks of the shadow credit bubble, Some analysts have estimated annual growth as high as 50% for China’s Bubbling Credit emanating outside of normal banking channels. According to Barclay’s, the Chinese “‘shadow banking’ industry has nearly doubled in the past two years to $4.11 trillion, or more than a third of total lending.”
And he continues, Various recent headlines support my “right tail” analysis: “Record-setting Year for Corporate Debt;” “Record Year for Junk Bonds;” “Mortgage Bonds Soar on Fed’s Refinance Push;” “[Corporate] Sales Approaching $4 Trillion in Stimulus Repast; “A Banner Year For Riskiest Debt;” “Fourth-Quarter M&A Surge Spurs Optimism..;” “Leveraged Loan Volume: $456bn in 2012, Thanks to Torrid Fourth-Quarter Market.”
According to Bloomberg, global corporate bond sales this year just surpassed 2009’s record $3.89 TN. “Companies from the neediest to the most creditworthy took advantage of borrowing costs that fell to a record-low 3.27% this week as central banks held down interest rates to prop up the economy… Investors also funneled $475.3 billion into bond funds as global growth, which slowed to an estimated 2.2% this year from 2.91% in 2011, prompted them to seek alternatives to equities.” The first, third and fourth quarters all posted record issuance for their respective periods. “The yield on bonds worldwide fell 1.56 percentage points this year… Borrowing costs have tumbled from an all-time high of 9.05% in October 2008… Issuance in the U.S. reached a record, climbing 31% to $1.47 trillion, exceeding the previous all-time high of $1.24 trillion in 2009… Sales of high-yield bonds… reached $354 billion. That’s 23% above the previous record of $288 billion set in 2010.” According to Forbes’ Steve Miller, U.S. leveraged loans jumped 24% from 2011 to $465bn, with lending volumes below only 2006 and 2007.
Instead of de-risking/de-leveraging, Credit instruments enjoyed unprecedented demand. It is worth noting that 2012’s record $475bn of positive bond fund flows compares to 2011’s $99bn. A virtual buyers’ panic saw double-digit returns to corporate debt investors. And the riskier the paper, the higher the 2012 return.
When Total U.S. Mortgage Credit expanded $1.4 TN in 2005, there was no doubt that the Mortgage Finance Bubble had inflated to dangerous extremes. Yet that certainly did not stop a fateful $1.0 TN of subprime mortgage CDO (collateralized Debt Obligations) issuance in 2006. In 2012, global central banks and governments gave the great global Credit Bubble a new lease on life. Markets responded, not uncharacteristically, with only greater speculative excess. Speculative markets responded by only diverging further from fragile fundamentals.
Those market operators most adept at betting on policymaking enjoyed yet another year of stellar returns – along with more incredible growth in AUM (assets under management). The cautious fell only further (and further) behind. The hedge fund community lived to play another day, although with each passing year it seems to become more a story of the giants growing more gigantic. There were notable prosecutions of insider trading, although never in history has inside knowledge of policymaker intentions provided such opportunities for riches. At the Federal Reserve, policies accomplished the objective of spurring the lowly saver into risky securities. Overall, central banks succeeded in bolstering vulnerable global securities markets.
I conclude that fiat market investments are now starting to selling off, and will see a massive disinvestment, as investors derisk and deleverage out of carry trade loans. With the world major currencies, DBV, and Emerging Market Currencies, CEW, turning lower, there will be an accompanying rise in the US Dollar, $USD, UUP, for a while, before it too falls into the Pit of Financial Abandon.
A global economic paradigm shift is occurring. Inflationism is transitioning to Destructionism. The result being Liberalism is transitioning to Authoritarianism.
The end of Liberalism arrived December 28, 2012 as investors lost confidence in the monetary authority of the world central banks to stimulate global growth and corporate profitability, as a result, Bonds, BND, traded lower, and investors derisked out of stocks, VT, and delveraged out of the world major currencies, DBV. Authoritarianism will be mankind’s experience beginning in 2013. As people increasingly come to lose trust in credit, they will come to rely upon dikat. Liberalism’s fiat money system is on the way out. Authoritarianism’s diktat money system will come to govern economics in the world’s ten regions and in mankind’s seven institutions.
Great Depression I, came through the stress of a large amount of Municipal Debt, and Wall Street Speculation. Great Depression II, will come through a global load of debt, AGG, and the global speculative investing led by the world’s 50 leading banks, IXG, seen in this Finviz Screener.
Signs of the Times relates NASA video captures 2012 Geminid meteor shower fireball. The Geminid Meteor Shower and Fireball, which streams from a point called “the radiant” in the constellation Gemini, occurred on December 13 2012 and December 14, 2012, and coincided with a New Moon; thus giving a cosmos marking, communicating the end of “the dispensation of prosperity”, and confirming the beginning of “the age of austerity”.
Thanks to all who have come to read my writings. I relate that I have no financial assets; I live in poverty. I go walking about in Bellingham, with destination being its many wonderful parks, where I gather my thoughts for blogging in a notebook, and at the end of the day use the Bellingham Public Library to communicate that Jesus Christ is at the helm of the economy of God, Ephesians, 1:10, pivoting the world from Liberalism into Authoritarianism. While in Fairhaven Park recently, I was gazing into the sky, and Morpheus, the God of Dreams, appeared. He was not black like in the movie The Matrix, but Jewish looking, with while long hair, and fiery red eyes. He came with no Morpheus Proposal, rather he said, “Be faithful unto death and I will give you the crown of life.”