Financial Market Report for the week ending July 18, 2014
This post is available in Google Documents format here.
1) … In this week’s financial marketplace trading
On Monday, July 14, 2014, Marketwatch reports Gold Plunges 2.3% In Biggest Daily Drop of 2014 As Investors Book Profit. “Overall, we believe that physical demand has remained short of expectations, the latest price increase having been driven largely by speculation,” wrote Eugen Weinberg, commodity strategist at Commerzbank in Frankfurt, in a note. Pointing to India, Weinberg said the country’s decision to maintain a 10% import duty on gold and silver “is also likely to have a dampening effect on future gold demand expectations. In conjunction with a rather below-average monsoon season, this points to below-average gold demand from India.” Gold prices ended last week on a down note, but still managed to register their sixth straight weekly gain. Gold had probed four-month lows near $1,244.30 an ounce in early June, rallying to more than $1,337 last week.
On Tuesday, July 15, 2014, Fed Chairman Janet Yellen spoke in Semiannual Monetary Policy Report To Congress, and stocks, commodities, bonds, and currencies all traded lower, evidencing the failure of fiat money.
Nation Investment, EFA, traded slightly lower, and was led lower by Philippines, EPHE, Argentina, ARGT, Europe, EZU, FEU, FEZ, DFE, Sweden, EWD, US Small Caps, IWM, IWC, Peru, EPU, Colombia, GXG, Canada, EWC, CNDA, and Russia, RSX, ERUS, as investors deleveraged out of currency carry trades worldwide, such as the EURJPY.
World Stocks, ACWI, traded slightly lower, and were led lower by the High Beta Sectors, in particular,
Social Media, SOCL, Biotechnology, IBB, Pharmaceuticals, PJP, Small Cap Pure Growth, RZG, Nasdaq Internet, PNQI, Internet Retail, FDN, Biotechnology, TAN, Medical Devices, IHI, IPOs, FPX, and Design Build, FLM. Of note, Building Materials, such as AAON, GFF, HW, APOG, BECN, AOS, and MAS, traded lower.
Global Financials, IXG, traded unchanged, but Argentina Banks, BMA, GGAL, BFR, BBVA, Spain’s Bank, SAN, and the National Bank of Greece, NBG, traded lower, and led European Financials, EUFN, lower, as Zero Hedge reports Espirito Santo Holding Company Preparing To File Bankruptcy.
Yield Bearing Investments, DTN, trading lower included Shipping, SEA, Water Resources, FIW, International Dividend Dogs, IDOG.
Commodities, DBC, was led lower by a lower price of Oil, USO, BNO, and Natural Gas, UNG, which stimulates Natural Resources, IGE, to trade lower; which were led lower by Copper Mining, COPX, Energy Production, XOP, and Energy Service, OIH.
Gold Miners, GDX, GDXJ, traded lower on a lower price of Gold, GLD. And Silver Miners, SIL, SILJ, traded lower on a lower price of Silver, SIL. The six week rally in the HUI Precious Metal Miners, $HUI, is over, as the chart of the Gold Miners relative to Gold, GDX:GLD, shows a dark cloud candlestick at the top of an ascending wedge. Money News posts Gold Miner Stock Rally Presages Gains For Gold Itself.
Debt deflation is underway as Credit Investments, AGG, traded lower, as the Interest Rate on the US Ten Year Notes, ^TNX, traded higher from its Friday July 11, 2014, value of 2.52% to 2.55%, chipping away of a broad range of credit investments Distressed Investments, such as those traded in Fidelity’s FAGIX Mutual Fund, which underwrote QE1, as well as Junk Bonds, JNK, traded lower. Almost all of the most Popular Notes and Bonds, such as TLT, EDV, BWX, FLOT, SHY, LQD, PICB, MBB, traded lower in value from their market top highs.
Major World Currencies, DBV, were led lower by the Canadian Dollar, FXC, the Euro, FXE, and the Swiss Franc, FXF, and the Emerging Market Currencies, CEW, traded lower, with the result that the US Dollar, $USD, UUP, traded higher. Based on the success of the bond vigilantes in sustaining the Benchmark Interest Rate, $TNX, above 2.49%, the currency traders have commenced global competitive currency devaluation.
On July 2, 2014, the failure of credit commenced as Aggregate Credit, AGG, traded lower in value.
On Monday, July 7, 2014, the destruction of fiat wealth commenced, as risk-on investing turned to risk-off investing, with World Stocks, ACWI, Nation Investment, EFA, Global Financials, IXG, and Yield Bearing Investments, DTN, all trading lower from rally highs, as investors fear that the monetary policies of the world central banks no longer stimulate investment gains nor global economic growth.
This week, on Tuesday, July 15, 2014, the death of currencies commenced as is seen in the Swiss Franc, FXF, Commodity Currencies, CCX, such as the Canadian Dollar, FXC, the Euro, FXE, and the Australian Dollar, FXA, trading lower, on fear that the monetary policies of the world central banks have crossed the rubicon of sound monetary policy and have made money good investments bad; these include Eurozone Nation Investment, such as Spain, EWP, Italy, EWI, Finland, EFNL, Netherlands, EWN, France, EWQ, Ireland, EIRL, Austria, EWO, Portugal, PGAL, and Greece, GREK, as well as Sweden, EWD, Norway, NORW, Denmark, EDEN, Switzerland, EWL, and the US Small Caps, IWM, IWC; these are all failed nation state investments.
The Eurozone Nations are insolvent sovereigns and cannot provide fiscal investment, economic seigniorage; and exist solely through the credit liquidity of the ECB.
Gary of Between the Hedges posts Los Echos reports ECB’s Praet Says Investment in France Is Acute Problem. The ECB’s chief economist comments in an interview with daily newspaper Les Echos that the pace of recovery in France is disappointing.
One should not be invested in Equity Investments, Nation Investments, Banking Investments, Yield Bearing Investment, or Credit Investments, as the death of Sovereign Currencies, commenced on Tuesday July 15, 2014, after Janet Yellen spoke in Semiannual Monetary Policy Report To Congress.
Fiat Money, defined as the combination of Credit, AGG, and Major World Currencies, DBV, such as the New Zealand Dollar, as well as Emerging Market Currencies, CEW, such as the Philippine Peso, died on Tuesday July 15, 2014, as investors fear that the monetary policies have crossed the rubicon of sound monetary policies and have made money good investments bad.
Bloomberg reports on the Philippine Peso relating Peso Goes From First to Worst as Court Halts Plans. My comment on the article is that the Philippines, EPHE, is an insolvent sovereign.
In contrast Mexico, EWW, traded higher as Bloomberg reports Foreigners Can’t Get Enough Bonds In Oil Law Boon. International investors are boosting their holdings of Mexico’s peso-denominated government debt to a record as lawmakers near a vote on rules to end the nation’s seven-decade-old oil monopoly.
Canada, EWC, also traded higher, largely due to a trade lower in its 10 Year Sovereign Yield.
With the failure of credit on July 1, 2014, seen in Aggregate Credit, AGG, trading lower in value as the bond vigilantes called the Interest Rate on the US Ten Year Note, ^TNX, higher from 2.49%, the world is moving through a historic economic inflection point.
The world is pivoting through peak wealth. Fiat Wealth, defined as World Stocks, VT, Global Financial Institutions, IXG, Nation Investment, EFA, and Yield Bearing Investments, DTN, together with Aggregate Credit, AGG, is is literally being sawn asunder by the failure of trust in the world central banks’ monetary authority to continue to provide investment gain, and global economic growth, as is seen in the Bloomberg reportEuropean Stocks Drop With Treasuries as Commodities Fall, and as is seen in the Zero Hedge reportPeak Abenomics.
The recovery from the Great Recession of 2008-09 has been the weakest ever, the reason being that the nature of money changed with the provision of the Greenspan Put, which became the Ben Bernanke QE1.
From 2008 onward, the Fed’s policy no longer came from theHumphrey Hawkins dual mandate of employment and growth, and thus have not provided economic recovery. The Global ZIRP monetary policies of the world central banks were designed to change the primary function of money to serve as the basis of fiat wealth investment; and thus birthed the investor, and investment gain, as the centerpiece of economic activity, with the result being the creation of awesome fiat wealth inflation, rather than much of any employment gains.
The June 5, 2014 Mario Draghi ECB Mandates for NIRP and Targeted LTRO, together with theJune 21, 2014, Mario Draghi ECB Press Announcement Calling For Shared Sovereignty, addresses secular stagnation, defined as low growth, low employment, and low inflation; and introduce the new global empire, that being the Ten Toed Kingdom, with a miry mixture of iron and clay, forming toes of diktat in regional governance, and clay in totalitarian collectivism.
The First Toe will emerge out of Club Med, that is Portugal, Italy, Greece and Spain, sovereign, banking, and corporate insolvency, as a Revived Roman Empire, having a New Charlemagne, Jean Claude Juncker, and a New Monetary High Priest, Mario Draghi, which in soon coming regional economic governance, will serve as a template for like governance, in all of the world’s ten regions, establishing totalitarian collectivism unifying all of mankind’s seven institutions.
Thus a new monster, the Beast Regime, will replace today’s monster, the Creature from Jekyll Island.
These Mandates and the Call serve as the EU Economic Manifest, that is the Charter and Club, for Eurozone regional governance, and have birthed the debt serf and debt servitude, as the centerpiece of economic activity, and will become ever more apparent and defined, as the call for shared regional sovereignty becomes ever more trumpeted, as economic deflation worsens when investors increasingly derisk out of debt trade investments and deleverage out of currency carry trade investments.
There are no social rights in the age of regional governance. Jerry White of WSWS posts Detroit Elites Declare: Water Is Not A social Right
The failure of credit, which occurred on July 2, 1014, and the death of currencies, which occurred on July 15, 2014, are dual extinction events, which will rapidly make the investor extinct; one should not be invested in any fiat investments..
The Bond Vigilantes, being in firm control of The Bow of Economic Sovereignty, that is the Benchmark Interest Rate, will be calling Interest Rates higher worldwide, introducing political coup d etats; out of which the new money, diktat money, defined as the mandates of regional leaders for regional security, stability, and sustainability, will underwrite regional fascism replacing today’s crony capitalism, socialism, and communism.
The Fed will not be rolling over maturing Treasuries and MBS; they will be held to term, with the result the bond vigilantes will be having a hay day causing an ever accelerating destruction of the Fed’s Balance Sheet, rapidly destroying the US Dollar Hegemonic Empire. In its place eventually ten kings will come to rule in each of the world’s ten regions which will feature un-dollar, that is dollar-less, or better said un-dollar, regional bartering exchanges featuring new currencies such as the Petro Yuan.
Now that Global ZIRP, that underwrote property investments of all types,is history look for Real Estate, IYR, and especially Global Real Estate, DRW, to rapidly fall lower in value, as the Benchmark Interest Rate, $TNX, starts to rise from 2.49%.
Inasmuch as destructionism is replacing inflationism, the economic future is one of global economic deflation, and rising headline price inflation.
Bloomberg reports Ukraine Says Russia May Have Shot Down Transport Plane. Ukraine’s Defense Ministry said Russian forces may have shot down one of its airplanes to bolster the Kremlin-backed insurgency and sabotage efforts to end a conflict that’s already claimed hundreds of lives. An An-26 transport plane was shot down in eastern Ukraine today by a “powerful weapon” not previously used by the separatists, probably from inside Russia, Defense Minister Valeriy Geletey told President Petro Poroshenko, according to the president’s website. The plane was hit at 6,500 meters, an altitude shoulder-fired missiles can’t reach, he said. The aircraft was probably struck either by an air-to-air missile from a jet based at Russia’s Millerovo base or a surface-to-air rocket from a mobile ground system, Andriy Lysenko, a ministry spokesman, told reporters in Kiev.
The Daily Star reports NATO Denounces New Russian Troop Build-up On Ukraine border. NATO on Monday said Russia had increased its troops near the Ukraine border to as many as 12,000 after reducing them to less than 1,000 in June, hurting efforts to ease the crisis. “This is not a step in the right direction. It is a step away from de-escalating the situation,” a NATO official said. “Our current assessment is that between 10,000 and 12,000 Russian troops are in the area.”
Public Private Partnership established by the US Intelligence Community. Government Executive posts Amazon’s Huge Cloud Deal With the CIA. The intelligence community is about to get the equivalent of an adrenaline shot to the chest. This summer, a $600 million computing cloud developed by Amazon Web Services for the Central Intelligence Agency over the past year will begin servicing all 17 agencies that make up the intelligence community. If the technology plays out as officials envision, it will usher in a new era of cooperation and coordination, allowing agencies to share information and services much more easily.
Whiting To Buy Kodiak For $3.8 bln, Create No. 1 Bakken Producer. Whiting Petroleum, WLL, said it would acquire Kodiak Oil & Gas for $3.8 billion in stock, to become the largest producer in North Dakota’s Bakken shale oil formations, eclipsing Harold Hamm’s Continental Resources.
Philip Guelpa of WSWS posts Atlantic City, New Jersey Casino To Close, Sign Of Worsening US Jobs Crisis. The owners of the Trump Plaza resort casino in Atlantic City announced on Saturday that it would close in September, laying off approximately 1,000 workers.
CBS Philly reports Violent Night In North Philly Leaves 2 Dead, 1 Critical. Because of its high crime rate, North Philly is known as The Badlands. Wikipedia reports There are six zip codes for North Philadelphia: 19132, 19133, 19121, 19122, 19130 and 19123.
On Wednesday, July 16, 2014, Regional Banks, KRE, traded lower, taking the US Small Caps, IWM, IWC lower. India, INP, SCIN, INXX, EPI, China, YAO, ECNS, CHXF, CHIX, traded higher; while Brazil, EWZ, EWZS, BRXX, and BRAF traded lower.
On Thursday, July 17, 2014, Bloomberg reports S&P 500 Tumbles, Treasuries Rally On Crises In Ukraine And Middle East. The S&P 500, $SPX, lost 1.2 percent for its first decline of at least 1 percent since April 10. The rate on German 10-year bonds, closed at a record low, driving German Treasury Debts, BUND, to a new high.
Sectors, Semiconductors, SOXX, Solar Energy, TAN, Homebuilders, ITB, Small Cap Consumer Staples, PSCC, US Infrastructure, PKB, China Technology, CQQQ, Nasdaq Internet, PNQI, Copper Miners, COPX, Biotechnology, IBB, Resorts And Casinos, BJK, Social Media, SOCL, Small Cap Pure Growth, RZG, Pharmaceuticals, PJP, Transportation, XTN, Global Industrial Producers, FXR, Medical Devices, IHI, Smartfone, FONE, and Retail, XRT, led World Stocks, ACWI, lower, as Bespoke Investment Group posts Retail Sales Weaker Than Expected.
Credit Services, V, MA, CIT, AXP, DFS, traded lower.
Legacy Industries, Steel, SLX, Coal, KOL, Global Industrial Miners, PICK, Timber Production, WOOD, traded lower.
Energy Production, XOP, and Energy Service, OIH, traded lower.
Cement Manufacturers, JHX, CX, JHX, EXP, CRH, led Global Growth, DNL, lower.
Investors derisked out of debt trade investments in the Yield Bearing Sectors such as Emerging Market Dividend, EDIV, Leveraged Buyouts, PSP, Global Utilities, DBU, Water Infrastructure, FIW. International Dividend Dogs, IDOG, Shipping, SEA, International Telecom, IST, Dividends Excluding Financials, DTN, and Global Real Estate, DRW.
Investors deleveraged out of currency carry trade investment in Portugal, PGAL, Italy, EWI, Greece, GREK, Spain, EWP, Netherlands, EWN, Germany, EWG, and Eurozone Small Cap Dividends, DFE, which led the Eurozone, EZU, lower. The US Small Caps, IWM, IWC, traded lower. Russia, RSX, ERUS, New Zealand, ENZL, Developing Europe, ESR, GUR, Taiwan, EWT, Sweden, EWD, Brazil, EWZ, EWZS, BRXX, BRAF, India, INP, SCIN, INXX, EPI, China, YAO, CHIQ, ECNS, CHXX, CHXF, CHIX, TAO, HNP, South Africa, EZA, Norway, NORW, Turkey, TUR, Thailand, THD, Chile, ECH, Indonesia, IDX, IDXJ, Emerging Market Infrastructure, EMIF, led Nation Investment, EFA, and the Emerging Markets, EEM, tower, as Market Watch reports European Losses Deepen As Ukraine Crisis Intensifies.
European Financials, EUFN, Far East Financials, FEFN, and Regional Banks, KRE, traded lower, turning Global Financials, IXG, lower.
The Inverse Market ETFs, such as EUM, RWM, MYY, PSQ, EFZ, traded higher; these could be used as the basis of collateral in a short selling investing strategy.
Reuters reports Euro Zone Industry Stumbles In May, Recovery Still Frail.
Trading Floor posts Retreating Renzi Is Proving To Be No Italian Saviour. Italian Prime Minister Matteo Renzi retreating from reformist agenda. The Italian debt-to-GDP ratio at 133% with prospects of reduction to 60% minimal. Renzi on collision course with fellow Italian Mario Draghi at ECB over debt.
Bloomberg reports Bloomberg Ukraine Says Malaysian Airliner Shot Down Near Russian Border. A Malaysian Airlines jet was shot down over eastern Ukraine killing all 295 people on board, with the government in Kiev blaming pro-Russian rebels. Yet, Mike Mish Shedlock post Russian news website claimsUkrainian Army Buk Missile Likely Downed Malaysian Plane.
Rosneft Sanctions to Boost Reliance on China Loans. OAO Rosneft (ROSN), the world’s biggest publicly traded oil producer by volume, will rely on deals with China to withstand the latest U.S. sanctions against Russia.
China Rate Swap Jumps as Bond Sales Pulled Amid Default Risk. China’s interest-rate swaps jumped the most in a year and at least four companies scrapped debt sales amid concern the nation faces what would be the second default in its $4.4 trillion onshore bond market. The cost of one-year swaps that exchange fixed payments for the floating seven-day repurchase rate rose 17 basis points, or 0.17 percentage point, to 4.10 percent in Shanghai, according to data compiled by Bloomberg. That’s the biggest increase since July 22, 2013, and adds to a 20 basis-point gain in the last three days. Junk bond yields jumped the most in three months
Gold, GLD, Silver, SLV, traded higher, recovering some of Monday’s losses, taking the Gold Miners, GDX, GDXJ, and the Silver Miners, SIL, SILJ, higher.
Oil, USO, traded higher, taking Energy Partnerships, AMJ, EMLP, MLPJ, higher, while Natural Gas, UNG, traded lower.
The Interest Rate on the US Ten Year Note, ^TNX, traded lower to 2.49% and the 10 30 US Sovereign Debt Yield Curve flattened, as is seen in the Flattner ETF, FLAT, trading higher, and the Steepner ETF, STPP, trading lower, with the result that the 30 Year Us Government Bonds EDV, The 10 Year US Notes, TLT, Long Duration Corporate Bonds, LWC, Build America Bonds, BABS, Insured Municipal Bonds, PZA, Corporate Bonds, LQD, Mortgage Backed Bonds, MBB, and Municipal Bonds, led Aggregate Credit, AGG, higher to recover to its early June 2014, high. But Junk Bonds, JNK, Emerging Market Bonds, EMB, Emerging Market Currency Debt, EMCD, and High Yield Municipal Bonds, HYD, traded lower.
On Friday, July 18, 2014, Brazil, EWZ, EWZS, Turkey, TUR, Argentina, ARGT, Indonesia, IDX, IDXJ, Vietnam, VNM, South Africa, EZA, Egypt, EGPT, Philippines, EPHE, India, INP, SCI, China, ECNS, CHXF, Turkey, TUR, Thailand, THD, Peru, EPU, and Developing Africa, GAF, traded higher, drawing Emerging Market Dividends, EDIV, Emerging Market Infrastructure, EMIF, Emerging Markets, EEM, Emerging Market Small Caps, EWX, in recovery from losses earlier this week.
Sweden, EWD, South Africa, EZA, Taiwan, EWT, Singapore, EWS, South Korea, EWY, Israel, EIS, Australia, EWA, KROO, Mexico, EWW, Singapore, EWS, Australia, EWA, KROO, traded higher, helping Nation Investment, EFA, in recovery from losses earlier this week.
Sectors, Manufactured Housing, CVCO, Biotechnology, IBB, Solar Energy, TAN, Nasdaq Internet, PNQI, Social Media, SOCL, Internet Retail, FDN, Pharmaceuticals, PJP, IPOs, FPX, Small Cap Pure Growth, RZG, Retail, XRT, Small Cap Consumer Discretionary, PSCD, Small Cap Consumer Staples, PSCC, Small Cap Pure Value, RZG, China Technology, CQQQ, Aerospace, PPA, Semiconductors, SOXX, Transportation, XTN, Small Cap Industrials, PSCI, traded higher, helping World Stocks, ACWI, recover from losses earlier this week.
The Precious Metal Miners, GDX, GDXJ, SIL, SILJ, traded lower, on a lower price of Gold, GLD, and a lower price of Silver, SLV. The ratio of Gold Mining Stocks, GDX, relative to Gold, GLD, that is GDX:GLD, has risen strongly to resistance and communicates that these will be unable to leverage higher over the price of the precious metals. To preserve one’s wealth, one should start to dollar cost average an investment in gold bullion, store it safely, and insure it with an insurance policy, as well as invest in OUNZ, the deliverable gold ETF, and open an Internet Bullion Trading Account with GoldMoney and Bullion Vault.
Asset Managers, STT, BK, PFG, AMG, BLK, AMG, BEN, Canadian Banks, BMO, BNS, RY, US Bank C, Argentina Banks, BFR, GGAL, BMA, Brazil Financials, BRAF, BSBR, BBDO, BBD, ITUB, India Earnings, EPI, HDB, IBN, and Emerging Market Financials, EMFN, CIB, European Financials, EUFN, Stock Brokers, IAI, Investment Bankers, KCE, JPM, GS, MS, Life Insurer, PUK, Regional Bankers, KRE, and Stockbrokers, IAI, traded higher, helping Global Financials, IXG, recover from losses earlier this week.
The market manifested a short squeeze, with Health Care Providers, IHF, Global Industrial Miners, PICK, Steel, SLX, Aerospace, PPA, Media, PBS, Design Build, FLM, Automobiles, CARZ, Large Cap Nasdaq, QQQ, Credit Services, URI, HEES, V, MA, AXP, DFS, FCFS, Regional Airlines, Foreign Airlines, Major Airlines, Aluminum Producers, and Automobile Dealerships, trading higher on Friday July 18, 2014.
The trade lower in Regional Banks, KRE, and European Financials, EUFN, the week ending July 18, 2014, evidences that these are failed financial institutions, are incapable of transmission of the world central banks monetary policies, and thus are unable to continue to generate liberalism’s economic growth, DNL; such is witnessed by the trade lower in the US Small Caps, IWM, and the Eurozone Stocks, EZU, and the Eurozone Nations, such as Portugal, PGAL, Italy, EWI, Greece, GREK, and Spain, EWP.
In the Yield Bearing Sectors, Water Resources, FIW, Global Utilities, DBU, Global Infrastructure, IGF, Australia Dividends, AUSE, Leveraged Buyouts, PSP, Shipping, SEA, and International Dividend Dogs, IDOG, traded higher, recovering from losses earlier in the week. Rental Management Company, BX, Industrial Office REITS, FNIO, Residential REITS, REZ, Hotel REITS, Retail REITS, Real Estate, IYR, and Global Real Estate, DRW, traded to new rally highs.
The trade lower in the Defensive Sectors, DEF, such as Utilities, XLU, Global Utilities, DBU, International Energy Producers, IPW, Energy Service, OIH, Global Agriculture, PAGG, Consumer Staples, KXI, and Insurance, KIE, evidences the beginning of the extinction of the investor, coming on the failure of credit on July 2, 2014, and the death of currencies, on July 15, 2014.
Aggregate Credit, AGG, settled slightly lower on the day, but higher on the week, and now resides at its June 2014, market rally high. The Benchmark Interest Rate, $TNX, closed the week at 2.49%, with the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, totally flattened, as is seen in the Flattner ETF, FLAT, trading strongly higher, and the Steepner ETF, STPP, trading strongly lower.
The case for Interest rates going higher has come of age as David Kotox posts Financial Sense posts Tapering Is Now Tightening.
The trade lower in Junk Bonds, JNK, the week ending July 18, 2014, evidences the beginning of the end of the pursuit of yield investing that came with the world central bank’s monetary policies of Global ZIRP.
The trade lower in the Swiss Franc, FXF, the Commodity Currencies, CCX, the Euro, FXE, the Canadian Dollar, FXC, and the Emerging Currencies, CEW, together with the trade higher in the US Dollar, $USD, UUP, to strong resistance, the week ending July 18, 2014, communicates the termination of the Milton Friedman Free to Choose floating currency exchange rate paradigm where the US Dollar served as the US Reserve Currency.
The Creature from Jekyll Island died the week ending July 18, 2014; out of the soon coming failure of the Eurozone Nations, and the European Financials, the Mario Draghi and Jean Claude Juncker Beast Regime will rise to establish regional economic governance and totalitarian collectivism, for regional security, stability and sustainability.
2) … Conclusion. The debt based money system has produced peak coinage … Debasement of the coinage of the Banker Regime commenced July 15, 2014 … The world is passing from the fiat of democratic nation state governance into the mandate of regional governance.
The fiat money system was fathered by Milton Friedman in 1971 who proposed the economic paradigm where the investor be free to choose investment opportunities in democratic nation states where floating currency exchange rates would develop economic trade, global growth and investment gain, where the US Dollar would serve as the world’s reserve currency.
Global finance was underwritten by a Flood of Dollars. Ambrose Evans Pritchard writes Fed Kicks Off Global Dollar Squeeze As Janet Yellen Turns Hawkish. A vast wash of dollars flooded the global financial system when the Fed cut rates near zero and then bought $3.5 trillion of bonds. This may now go into reverse.
We still live in a dollarized world. Charles de Gaulle railed against the “exorbitant privilege” of US dollar hegemony in the 1960s, but remarkably little has changed since. The BIS says global cross-border lending by banks alone has risen from $4 trillion to $10 trillion over the past decade, and $7 trillion of this is denominated in dollars. This does not include the dollar bond markets.
What Fed now does arguably has more amplified effects than at any time since the end of gold and the collapse of the fixed-exchange Bretton Woods regime in 1971. This is the paradox of 21st century globalisation.
Much of the dollar business is conducted through European and UK banks, leaving them acutely vulnerable to a dollar squeeze. Such episodes can be ferocious. It was a dollar liquidity shock that turned the Lehman affair into a global banking crisis, instantly engulfing Europe in October 2008.
Emerging markets went into a tailspin last year at the first suggestion of Fed bond tapering. There was a sudden stop in capital flows. The “Fragile Five” (India, Indonesia, South Africa, Brazil and Turkey) were punished for current account deficits. The Fed backed down. The storm passed. There was a second “taper tantrum” earlier this year as the Fed finally began to pare back its $85bn monthly purchases under QE3.
However, that is not the end of story. A study by the International Monetary Fund concluded that the Fed’s QE had pushed $470bn into emerging markets that would not otherwise have gone there. IMF officials say nobody knows how much of this hot money will come out again, or how fast.
The BIS in turn said in its annual report two weeks ago that private companies had borrowed $2 trillion in foreign currencies since 2008 in emerging economies, lately at a real rate of just 1pc. Loans to Chinese companies have tripled to $900bn – some say $1.2 trillion – mostly through Hong Kong and often disguised by opaque swap contracts in what amounts a dangerous carry trade. Countries do not borrow in dollars any longer (mostly) but their banks and industries certainly do.
The report said monetary largesse in the West has destabilised emerging economies in all kinds of ways. One of the worst – and least understood – ways is that they were forced to choose between internal credit bubbles or surging currencies. Most opted for (credit) bubbles as the lesser evil, holding their domestic interest rates at 300 basis points below the safe “Taylor Rule” level.
This has driven their total debt levels to a record 175 pc of GDP. It may be even worse. China has thrown all caution to the wind, pushing credit from $9 trillion to $25 trillion since Lehman. Its debt levels have reached 220 pc by some estimates. Officials at both the IMF and the BIS privately doubt whether China can extricate itself smoothly from this.
Not all emerging markets are in the same boat. It is meaningless to compare Poland or the Czech Republic with Nicaragua. Yet there is no denying that a long string of countries are in structural crisis, ensnared by the middle-income trap. They have exhausted the low-hanging fruit of catch-up growth. They failed to carry market reforms to varying degrees. Productivity has wilted.
Brazil, South Africa and Russia have all hit the buffers and all have a foot in recession right now, casualties of commodity addiction or the Dutch Disease. The outlook for Russia is utterly bleak. It has blundered into a conflict with the West that will smother investment for years, and it may have to draw down its reserves to cover $700bn of foreign currency debt unless it can tap the capital markets again.
Now these countries – and many others with parallel problems, like autocratic Turkey under Tayyip Recep Erdogan – must brace for a secular rise in global borrowing costs, and as the BIS warns, the world is today more sensitive to interest rates than ever before. As yields on two-year US Treasuries ratchet higher, the US currency will inevitably ratchet with it. “I am convinced that we are close to a major cyclical recovery for the dollar,” said Nomura’s Mr Nordvig.
The dollar did not rally in the tightening cycle of 2004 to 2007 but that was an exception, the result of the EMU bubble, as well as trillions of reserve accumulation by China and the commodity bloc, amid a feverish rotation into euro bonds. That chapter is closed.
This time may look more like the traumatic episodes of the Volcker Fed, or the mid-1990s, both occasions when the world woke up to find the US had not spiralled into decline after all, and latterly was the only superpower left.
The BRICS, the mini-BRICS and much of global finance have taken out a colossal short position on the US dollar. Mrs Yellen has just issued the first margin call.
The global system of moral hazard came to an end on July 15, 2014, when in response to Janet Yellen’s Semiannual Monetary Policy Report To Congress, Major World Currencies, DBV, and Emerging Market Currencies, CEW, traded lower with Aggregate Credit, AGG, as the bond vigilantes sustained the Interest Rate on The US Ten Year Note, ^TNX, calling it higher from 2.49% to 2.54%, terminating the investor and his life pursuit of investment gain. Fiat money died with the death of currencies and the failure of credit on July 15, 2014.
Sovereign currency debasement is underway. The July 15, 2014, Fed Chairman’s served as an inflection point in mankind’s economic history, as investors no longer trust in the monetary policies of the US Fed, and as a result debasement of fiat currencies and fiat investments is underway.
Also fiat wealth debasement is underway on the failure of credit, a case in point is Portugal Telecom, PTI, and the Nation of Portugal, PGAL. Matt Clinch of CNBC reports Portugal’s Bank Woes Just Got More Complicated. In video and print article Otto Dichtl, managing director at Stifel Nicolaus, relates that Portugal Telecom shares slip on credit concerns of merger. “The saga surrounding troubled Portuguese lenderBanco Espirito Santo (BES) took another twist on Wednesday, with the fortunes of a telecoms merger shedding more light on the strength of the country’s banking sector.” Portugal Telecom (PTC-PT) rushed Wednesday to salvage a possible tie-up with Oi, the Brazilian telecoms company, after a possible default by Rioforte, an investment unit of the Espirito Santo Group, called the deal into question. Yields on Portuguese debt rose and investors fled to lower-risk assets. BES’ parent company, Espirito Santo International (ESI), was at the center of concerns after an audit by the country’s central bank in May showed “irregularities” in its accounts. The flames were fanned once again last week when debt repayments to clients on commercial paper issued by ESI were delayed. Shares in another part of the conglomerate, Espirito Santo Financial Group (ESFG), were temporarily suspended on the news, after it cited “material.
The failure of credit, has commenced the explosion of credit bombs, as is seen in the case of Portugal Telecom, PTI, and Nation Investment in Portugal, PGA; said another way debt deflation in unexpected places; the result of which can only result in ever widening waves of destructionism, manifesting as economic deflation in terms of corporations stumbling in providing goods and services, and in laying off employees as corporate balance sheets implode.
A suggested reading on destructionism is the John Rubino post They’re Lying To Us, Part 4: Fake Pensions.
Out of the failure of credit, and the collapse of currencies, liberalism’s dynamos of creditism, corporatism, and globalism are winding down. And authoritarianism singular dynamo of regionalism is winding up.
Out of soon coming global credit bust and financial system breakdown known as Financial Armageddon, regional leaders will meet in summits to renounce national sovereignty and announce shared sovereignty, that is regional pooled sovereignty, where regional framework agreements will provide regional fascism for regional security, stability, and sustainability.
The age of global finance is history on the death of currencies and the failure of credit; the new age is one of regional fascism. The June 5, 2014 Mario Draghi ECB Mandates for NIRP and Targeted LTRO, together with theJune 21, 2014, Mario Draghi ECB Press Announcement Calling For Shared Sovereignty, addresses secular stagnation, defined as low growth, low employment, and low inflation; and fathers the diktat money system, where in the new economic paradigm the debt serf be compelled to participate in regional fascist and totalitarian collectivism endeavors in a life of debt servitude. 24th Gold reports EU Bail-ins Coming As Germany OKs Depositor Bail-in.
Yann Algan Professor of Economics at Paris School of Economics and University Paris Est, posts in VOX Trust And The Welfare State: The Twin Peaked Curve.
I comment that Sweden and Denmark are characterized by Trust. The key is that both have Sovereign Currencies, and do not use the Euro, a common currency. These nations had sense not to be involved in the common currency debacle.
Trust in Sweden exists because it is cultured to develop there, and because their currency the Swedish Krona, up until March 2013, floated on top of the Euro, in fact it went sky high over the Euro, and because they use a tremendous amount of credit. Trust developed in Sweden because of currency float and credit bloat.
Trust in Denmark exists because it is Europe’s port and because Denmark has benefited from Nation Investment and Carry Trade Investment, as is seen in the relationship of Denmark, EDEN, relative to Europe 50, EFU, that is EDEN:EFU. If there is one term that describes Denmark it is “global economic powerhouse”, similar to Germany and South Korea. Trust developed in Denmark because of personal industry and unified entrepreneurship.
Wikipedia relates Denmark is a society based onconsensus (dialogue and compromise) with the Danish Confederation of Trade Unions and the Confederation of Danish Employers in 1899 in September Forget (The September Settlement) recognising each other’s right to organise, thus, negotiate.The employer’s right to hire and fire their employees whenever they find it necessary is recognised. There is no officialminimum wage (Danish: minimumsløn) set by the government; the minimum of wages (Danish: mindsteløn) is determined by negotiations between the organisations of employers and employees. Denmark produces oil, natural gas, wind- and bio-energy. Its principal exports are machinery, instruments and food products.
A new trust will developing, that is the trust in the word, will and way of regional leaders, as they provide policies of regional economic governance and schemes of debt servitude in totalitarian collectivism, to establish regional security, stability and sustainability.
The US Dollar, $USD, UUP, is headed higher; but will not inflate dramatically higher like Ambrose Pritchard believes. In fact it may be that Gold will be trading lower in value, as it does, one should be dollar cost averaging into the physical possession of gold bullion, as it is the only safe asset and will eventually be trading higher as all fiat assets trade lower in value. Gold is in the middle of an Elliott Wave 3 Up, these are the most dynamic and sweeping of all economic waves, as they move higher to their Elliott Wave 5 High.
The trade lower in the Defensive Sectors, DEF, such as Utilities, XLU, Global Utilities, DBU, International Energy Producers, IPW, Energy Service, OIH, Global Agriculture, PAGG, Consumer Staples, KXI, and Insurance, KIE, evidences the beginning of the extinction of the investor, coming on the failure of credit on July 2, 2014, (seen in the strong trade lower in Junk Bonds, JNK), and the death of currencies, seen in the Emerging Market Currencies, CEW, the Euro, FXE, and the Swiss Franc, FXF, trading lower the week ending July 15, 2014.
Another technical factor indicating that the stock market has turned from a bull market to a bear market is that while US Stocks, VTI, has sold off only 0.75%, from its rally high, a strong sell off has commenced in the High Beta Sectors from their recent highs, and includes Solar Energy, TAN, Biotechnology, IBB, Social Media, SOCL, Small Cap Consumer Discretionary, PSCD, Small Cap Consumer Staples, PSCC, Small Cap Puree Value, RZV, and Small Cap Pure Growth, RZG.
One of the principles in short selling is to sell into strength. Inasmuch as the market manifested a short squeeze on Friday, July 15, 2014, it would have been wise to go short those sectors being squeezed; which included Emerging Market Small Caps, EWX, Large Cap Nasdaq, QQQ, Manufactured Housing, CVCO, Credit Services, Retailers, Health Care Providers, Global Industrial Miners, Energy Service Companies, Credit Services, Major Airlines, Regional Airlines, Foreign Airlines, Railroads, Aluminum Producers, Automobile Dealerships, and Highly Leveraged Financial Institutions, such as the following BOFI, IBN, SAN, BSBR, BAP, BCA, SHG, WBK, GGAL, BMA, IX, CIB, RY, BNS, PUK, GNW, TMK, BANF, TFSL, WFC, PNC, LM, BR, STT, BK, CHIX, BCH, MTU, MCO, SMFG, BFR, BBVA, BLX, HDB, BMO, NMR, BBD, ITUB, TD, CM, STI, FITB, RF, HBAN, USB, KB, C, AMG, BLK, MS
Outside of the US Stocks there exists a number of short selling investment opportunities which exist in debt trade investments and currency carry trade investments, as well as in Developed Nation Investment, such as New Zealand, ENZL, Australia, EWA, and Emerging Market Small Caps, EWX, Emerging Market Small Cap Dividends, EDIV, and Nation Investment in the Emerging Market, specifically, Philippines, EPHE, Indonesia, IDX, IDXJ, Vietnam, VNM, Thailand, THD, Turkey, TUR, Columbia, GXG, Emerging Africa, GAF, Argentina, ARGT, Brazil, EWZ, and China Technology, CQQQ.
Short selling opportunities exist across industry groups these include, IEP, NJ, ETN, FTK, GPK, BLL, AA, AAPL, ADBE, MSFT, STLD, LYB, PKOH, IFF, F, SCOR, HBI, REX, TEL, T, DIS, ARG, GT, INTC, HON, LRCX, GPRE, ABT, TBI, CSL, LXK, GLW, CSCO, TER, ADI, CMG, NFLX, SWKS, SHW, SCSS, EMC, WDC, SIG, and on, and on, and on
Another principle of short selling is to sell at a market top; it would have been wise to go short these revenue sectors as they rose to their market top; which included Rental Management Company, BX, Industrial Office REITS, Premium REITS, Residential REITS, REZ, Hotel REITS, and Retail REITS