Debt Got A Write Down This Last Week
Sunday, 20. July 2008, 03:49:42
Introduction
Austrian economist Mike Mish Sheldon contends we have passed through Peak Credit and that Deflationary Hurricanes are on the way. How correct he is.
An epic investment sea changed occured this last week: both utility stocks and credit, in the form of government bonds, were written down by the financial market place in response to the Wednesday economic report that inflation is rising.
ActionForex provides the details of Wednesday's inflationary report, which spoke strongly of stagflation: "On the data front, it was an extremely busy week in the US. Inflation data released reaffirmed Bernanke's comment that inflation risks has 'intensified'. Headline CPI surged by 1.1% mom in Jun, stronger rise since 1982, pushing yoy rate sharply higher from 4.2% to 5%, highest since 1991 and way above expectation of 4.5%. Core CPI was also up from 2.3% yoy to 2.4% yoy. Real earnings, on the other hand, dropped -0.9% in Jun, the biggest monthly decline since 1984. Headline PPI surged much more than expected from 7.2% yoy to 9.2% yoy versus consensus of 8.5% while core PPI was unchanged at 3.0% versus expectation of 3.2%.
From Eurozone, German ZEW economic sentiments deteriorated much more than expected from -52.4 to lowest readings in 16 years at -63.9 in Jul versus expectation of a modest fall to -55. Current situation gauge also dropped sharply by -20.6 points from 37.6 to 17. Eurozone ZEW economic sentiment also dropped sharply from -52.7 to -63.7 with current situation indicator turned negative from 7.9 to -3.3. Surging energy and food driven inflation and high interests rates are dragging down the Eurozone economy. ZEW respondents expect inflation to persist, and that short-term and long-term interest rates will rise.
Eurozone HICP in Jun confirmed to be 0.4% mom, 4.0% yoy. German PPI climbed to 26 year high of 6.7% yoy in Jun. Eurozone industrial production dropped -1.9% mom, -0.6% yoy. Eurozone trade balance showed wider than expected deficit of -4.6b in Jun.
UK headline CPI surged from 3.3% yoy to 3.8% yoy in Jun, even stronger than expectation of 3.6%, far above BoE's target of 2-3%. Core CPI was up from 1.5% yoy to 1.6%. RPI was also uncomfortably high at 4.6% yoy with RPI-X at 4.8% yoy. PPI beat expectation again. Jun output prices accelerated to 10.0% yoy, highest reading in 22 years. Input price surged to 30.3% yoy. Core PPI accelerated to 6.4% yoy but was below expectation of 6.5%.
BoJ left rates unchanged at 0.5% as widely expected on unanimous 7-0 vote. In an unexpected move, BoJ released the monthly statement together with the announcement. BoJ acknowledged that economic growth is slowing, trimming GDP forecasts from 1.5% to 1.2% yoy. Domestic CGPI forecasts was up sharply from 2.5% yoy to 4.8% yoy while CPI excluding food was also up from 1.1% yoy to 1.8% yoy. The Bank of Japan also noted global financial markets remain unstable and downside risks to the U.S. economy and the world economy remain."
A deflationary hurricane has landed in utility stocks and US Trearuy bonds
1) ... The Google Finance Chart of VPU, TLT, DES, DLN and DOO shows that concerns over inflation have hit the utility stocks hard and US Treasuries hard, as each fell 3% on Wednesday the 16th, through Friday the 18th, while the other dividend stocks, as a group, rose 7% while the overall stock market, VTI, rose 4%.
2) .... The chart of the Intermediate US Government Bond ETF, TLT daily, as of July 17th, 2008 shows two fractal breaks lower with RSI falling below 50 and a bearish MACD crossover.
3) ... The chart of the interest rate on the 30 Year US Treasury Bond, $TYX daily, shows that the bond market place called interest rates higher on Wednesday July 16, 2008 and Thursday July, 17, 2008, in response to the Wednesday economic report that inflation is rising, as well as the Federal Reserve's proposed guaranteeing and/or recapitalizing of Freddie Mac and Fannie Mae; note the breakout of RSI of 50 and the MACD bullish crossover.
The investment application is to go short the US Treasuries or long gold.
1) ... Go short the US Treasuries
One could go short treasuries by investing in the Proshares 200% Inverse of the US Treasuries ETF TBT:
Timing is all important: one should invest in the future when it falls in value some; as it has risen too strongly now to 71.23. The daily chart of TBT shows that on Wednesday July 16, 2008, the bond market place called interest rates higher in response to the Wednesday economic report that inflation is rising as well as the Federal Reserve's proposed guaranteeing and/or recapitalizing of Freddie Mac and Fannie Mae. Given, the breakout of RSI over 50; the MACD bullish crossover (not shown in this chart), and the rise above 50 day moving average, this ETF is now in breakout, witnessing that a run on US Treasury Bonds is now underway. Wealth can no longer be garnered and accumulated by investing in government bonds. A deflationary hurricane has come to government bonds. The rise in the Proshares 200% inverse of the US Treasury Bonds, TBT, confirms the Liquidation Thesis is now underway: government services and payments, service sector jobs, public and private debt of all types, and unfunded retiree benefits are going to be liquidated, that is done away with. It was Bernake's statement last weekend of extending liquidity and possible investing in Freddie Mac and Fannie Mae, and in so doing guaranteeing and/or recapitalizing these two corporations, that drove market place interest rates on government bonds higher this week, just like when Bernanke announced the provisions of TAF, TSFL, and PDCF on March 18, 2008. Thus we have three days of strong rise in TBT.
2) ... Invest in gold
It's truly an opportune time to go long gold, as the chart of gold, $GOLD, shows a price decline to $950, in its immediate chart objective of $1,000 -- its previous high.
Reports of inflation, interest rates rising, and stagflation all favor an investmet in gold.
The investment demand is easily seen in the following; these ratios show that wealth is garnered and maintained by investing in gold;
gold relative to world stocks: GLD:VEU
gold relative to US Stocks: GLD:VTI
gold relative to bonds: GLD:TLT
gold relative to oil: GLD:USO
gold relative to commodities: GLD:RJI
The ongoing MSN Finance chart, and presented here, shows that gold outperforms stocks, bonds, oil and commodities; in the last month gold is up 7%, bonds up 2%, oil down 4%, commodities down 5%, and world stocks down 7%.
While one could short sell, I see two major disadvantages of doing so. The first disadvantage is the ongoing depreciation of the dollar relative to gold; therefore, I do not want a dollar denominated anything. And the second disadvantage, is systemic risk events, yes events plural, where one may not have immediate and full access to one's wealth in the brokerage based and money market based financial system. Take for example, the Mike Mish Sheldon report Palm Beach County Foreclosure Report where he relates that losses on foreclosures are typically 50%. There is no way that the current investment system can take these kinds of hits: a global systemic failure of banks is coming soon.
Therefore, I encourage an investment in gold with diversification of location: BullionVault.com; GoldMoney.com, and in the gold ETF, GLD, in a trust account, not a brokerage account, in Switzerland.
Austrian economist Mike Mish Sheldon contends we have passed through Peak Credit and that Deflationary Hurricanes are on the way. How correct he is.
An epic investment sea changed occured this last week: both utility stocks and credit, in the form of government bonds, were written down by the financial market place in response to the Wednesday economic report that inflation is rising.
ActionForex provides the details of Wednesday's inflationary report, which spoke strongly of stagflation: "On the data front, it was an extremely busy week in the US. Inflation data released reaffirmed Bernanke's comment that inflation risks has 'intensified'. Headline CPI surged by 1.1% mom in Jun, stronger rise since 1982, pushing yoy rate sharply higher from 4.2% to 5%, highest since 1991 and way above expectation of 4.5%. Core CPI was also up from 2.3% yoy to 2.4% yoy. Real earnings, on the other hand, dropped -0.9% in Jun, the biggest monthly decline since 1984. Headline PPI surged much more than expected from 7.2% yoy to 9.2% yoy versus consensus of 8.5% while core PPI was unchanged at 3.0% versus expectation of 3.2%.
From Eurozone, German ZEW economic sentiments deteriorated much more than expected from -52.4 to lowest readings in 16 years at -63.9 in Jul versus expectation of a modest fall to -55. Current situation gauge also dropped sharply by -20.6 points from 37.6 to 17. Eurozone ZEW economic sentiment also dropped sharply from -52.7 to -63.7 with current situation indicator turned negative from 7.9 to -3.3. Surging energy and food driven inflation and high interests rates are dragging down the Eurozone economy. ZEW respondents expect inflation to persist, and that short-term and long-term interest rates will rise.
Eurozone HICP in Jun confirmed to be 0.4% mom, 4.0% yoy. German PPI climbed to 26 year high of 6.7% yoy in Jun. Eurozone industrial production dropped -1.9% mom, -0.6% yoy. Eurozone trade balance showed wider than expected deficit of -4.6b in Jun.
UK headline CPI surged from 3.3% yoy to 3.8% yoy in Jun, even stronger than expectation of 3.6%, far above BoE's target of 2-3%. Core CPI was up from 1.5% yoy to 1.6%. RPI was also uncomfortably high at 4.6% yoy with RPI-X at 4.8% yoy. PPI beat expectation again. Jun output prices accelerated to 10.0% yoy, highest reading in 22 years. Input price surged to 30.3% yoy. Core PPI accelerated to 6.4% yoy but was below expectation of 6.5%.
BoJ left rates unchanged at 0.5% as widely expected on unanimous 7-0 vote. In an unexpected move, BoJ released the monthly statement together with the announcement. BoJ acknowledged that economic growth is slowing, trimming GDP forecasts from 1.5% to 1.2% yoy. Domestic CGPI forecasts was up sharply from 2.5% yoy to 4.8% yoy while CPI excluding food was also up from 1.1% yoy to 1.8% yoy. The Bank of Japan also noted global financial markets remain unstable and downside risks to the U.S. economy and the world economy remain."
A deflationary hurricane has landed in utility stocks and US Trearuy bonds
1) ... The Google Finance Chart of VPU, TLT, DES, DLN and DOO shows that concerns over inflation have hit the utility stocks hard and US Treasuries hard, as each fell 3% on Wednesday the 16th, through Friday the 18th, while the other dividend stocks, as a group, rose 7% while the overall stock market, VTI, rose 4%.
2) .... The chart of the Intermediate US Government Bond ETF, TLT daily, as of July 17th, 2008 shows two fractal breaks lower with RSI falling below 50 and a bearish MACD crossover.
3) ... The chart of the interest rate on the 30 Year US Treasury Bond, $TYX daily, shows that the bond market place called interest rates higher on Wednesday July 16, 2008 and Thursday July, 17, 2008, in response to the Wednesday economic report that inflation is rising, as well as the Federal Reserve's proposed guaranteeing and/or recapitalizing of Freddie Mac and Fannie Mae; note the breakout of RSI of 50 and the MACD bullish crossover.
The investment application is to go short the US Treasuries or long gold.
1) ... Go short the US Treasuries
One could go short treasuries by investing in the Proshares 200% Inverse of the US Treasuries ETF TBT:
Timing is all important: one should invest in the future when it falls in value some; as it has risen too strongly now to 71.23. The daily chart of TBT shows that on Wednesday July 16, 2008, the bond market place called interest rates higher in response to the Wednesday economic report that inflation is rising as well as the Federal Reserve's proposed guaranteeing and/or recapitalizing of Freddie Mac and Fannie Mae. Given, the breakout of RSI over 50; the MACD bullish crossover (not shown in this chart), and the rise above 50 day moving average, this ETF is now in breakout, witnessing that a run on US Treasury Bonds is now underway. Wealth can no longer be garnered and accumulated by investing in government bonds. A deflationary hurricane has come to government bonds. The rise in the Proshares 200% inverse of the US Treasury Bonds, TBT, confirms the Liquidation Thesis is now underway: government services and payments, service sector jobs, public and private debt of all types, and unfunded retiree benefits are going to be liquidated, that is done away with. It was Bernake's statement last weekend of extending liquidity and possible investing in Freddie Mac and Fannie Mae, and in so doing guaranteeing and/or recapitalizing these two corporations, that drove market place interest rates on government bonds higher this week, just like when Bernanke announced the provisions of TAF, TSFL, and PDCF on March 18, 2008. Thus we have three days of strong rise in TBT.
2) ... Invest in gold
It's truly an opportune time to go long gold, as the chart of gold, $GOLD, shows a price decline to $950, in its immediate chart objective of $1,000 -- its previous high.
Reports of inflation, interest rates rising, and stagflation all favor an investmet in gold.
The investment demand is easily seen in the following; these ratios show that wealth is garnered and maintained by investing in gold;
gold relative to world stocks: GLD:VEU
gold relative to US Stocks: GLD:VTI
gold relative to bonds: GLD:TLT
gold relative to oil: GLD:USO
gold relative to commodities: GLD:RJI
The ongoing MSN Finance chart, and presented here, shows that gold outperforms stocks, bonds, oil and commodities; in the last month gold is up 7%, bonds up 2%, oil down 4%, commodities down 5%, and world stocks down 7%.
While one could short sell, I see two major disadvantages of doing so. The first disadvantage is the ongoing depreciation of the dollar relative to gold; therefore, I do not want a dollar denominated anything. And the second disadvantage, is systemic risk events, yes events plural, where one may not have immediate and full access to one's wealth in the brokerage based and money market based financial system. Take for example, the Mike Mish Sheldon report Palm Beach County Foreclosure Report where he relates that losses on foreclosures are typically 50%. There is no way that the current investment system can take these kinds of hits: a global systemic failure of banks is coming soon.
Therefore, I encourage an investment in gold with diversification of location: BullionVault.com; GoldMoney.com, and in the gold ETF, GLD, in a trust account, not a brokerage account, in Switzerland.
WIDGETIZE