Wednesday, 6. August 2008, 06:02:17
Stocks rallied after the Fed announcement as hopes of further central bank interest rate cuts still remainBriefing.com reports: "The Fed took a neutral tone in its latest directive, noting that there are both risks to inflation and growth. The Fed noted that although the economy grew in the second quarter, labor markets have "softened further" and financial markets remain under "considerable stress."
The statement was very similar to the June 25 release when the Fed also kept rates unchanged. One notable difference is in June the Fed said "upside risks to inflation and inflation expectations have increased," while the current statement says "upside risks to inflation are also of significant concern to the committee."
Dallas Fed President Fisher dissented, preferring an increase to the fed funds rate. This does not come as a surprise, as Fisher also dissented at the June 25 meeting, preferring a rise in the fed funds rate due to inflation risks.
The FOMC believes that inflation will moderate later this year and in 2009."
Economic nature cannot and will not be deniedThe chart of the Russell 2000 Value shares, IWN, relative to the Russell 2000 Growth shares, IWO,
daily IWN:IWO, has risen to hit June 1st to 9th resistance, and indicates that the age of financialized prosperity, and the age of liquidity coming through Federal Reserve liquidity provisions of continually lowering of interest rates and provisions of facilities of TAF, TSLF, and PDCF, has come to an end. Note how the IWN:IWO daily got oversold on July 16, as concern mounted over the GSEs Freddie Mac, FRE and Fannie MAE, FNM.
The weekly
IWN:IWO weekly has been falling since the credit crisis broke out with the Citigroup CDO Bust of October 7, 2007; in the last four weeks it has rise now to hit resistance at 0.872, suggesting that the value shares, the ones most influenced by the financials, must now fall lower.
The rise of the interest rate on the 30 Year US Treasury Bond,
$TYX, on March 18, 2008, and then again on July 14, 2008 in response to the TAF facilities, and the call of Bernanke for a rescue of the mortgage GSEs Freddie Mac, FRE, and Fannie Mae, FNM, indicates that a run on the US Treasury Bonds is underway.
The Liquidation Thesis is at work destroying aggregate debt,
AGG, and US Treasuries,
TLT; yes credit got a write down today on the very day of the Fed announcement. The Federal Reserve move to liquify and capitalize the GSEs was not well received by bond investors, they have been selling since the Ben Bernake called for a Rescue of Freddie Mac, FRE, and Fannie Mae, FNM.
The chart of the BRICS,
EEB, shows that the TAF rally ended May 19, 2008, and it shows that yen carry traders sold out of some of their investment in mid-June in response to the Bank of Japan announcent that inflation is an investment risk factor.
The Microsoft MSN chart of
USO, XLE, XME, OIH, GDX, and IYF relates that on July 15, 2008, immediately before options expiration, the yen carry traders sold out of oil, USO, to take profits, and to go long the financial stocks, IYF. This precipitated a disinvestment from energy production, energy service, metal manufacturing, and the HUI indexed precious metal shares. The sell off by the yen carry traders in oil effectively ended six profitable years of natural resource investing.
The Bespoke Investment Group in article
Percentage of Stocks Trading Above 50-Day Moving Averages relates the limited scope of the sell off: only 3% of the energy stocks trade above their 50 day averages; the other sectors were not damaged.
And the selling of oil by the yen carry traders to take profit on oil disconnected gold stocks loose from the price of gold, as seen in the ratio of the gold stocks relative to the price of gold, GDX:GLD, terminating their long held leverage over gold. I have consistently encouraged investors to trade out of gold stocks for the real thing, both in this blog and in
numerous FinancialSense.com articles.
Chart of the HUI indexed precious gold mining shares
GDX shows a waterfall loss of value. There is a big difference between gold mining shares and gold; the former now resides below their May 1, 2008 value; and the latter above.
An Elliott Wave 3 Down has commenced in the EUR/JPY,
FXE:FXY. This represents an unwinding of the yen carry trade. This is irreversable. The Elliott Wave 3s are the most dramatic and moving of all economic waves, they are the ones that build wealth on the way up and destroy wealth on the way down. So this action we see today in FXE:FXY is either an Elliott Wave 3 Down, or an Elliott Wave 1 Down, with an Elliott Wave 2 Up to come, and then followed later by an Elliott Wave 3 Down.
The Fed and the bankers would like to see a lower central bank interest rate. Mike Sheldon relates that
PIMCO chief Bill Gross said on CNBC tht the central bank has a responsibility now to provide liquidity: "We're in an asset deflation of near-historic proportions. That calls for the use of the government's balance sheet and not for the Federal Reserve to raise interest rates," he said. "To the extent that the central banks now must prevent that deflation, interest rates don't go up, they go down." And of note Mr. Sheldon, the top leading Austrian Economist of the day adds: "With this backdrop, screams of inflation are ridiculous".
I do not think a lowering of any interest rates is going to happen, as disinvestment is coming from "the mother of all short sales", that being the EUR/JPY turning lower -- it has started an Elliott Wave 3 down: destruction of wealth is underway that will force the hand of the yen carry traders out of the bank stocks even though they were given a carrot, that is an incentive by the statement "The FOMC believes that inflation will moderate later this year and in 2009."
Furthermore, marketplace interest rates,
$TYX are being called up by investors; I do not think the Fed will announce lower interest rates when market place interest rates are rising.
There comes a time when the Fed's announcements cannot rally or sustain. We have reached that point; the charts show the rally -- the GSE Rescue Rally has ended. The Fed cannot sustain the unstainable.
Interest rate differential investing is history as the commodity currencies are failed currencies; these have all collapsed.
The Australian dollar, FXA.
The Canadian dollar, FXC.
The Euro, FXE,
The Yen, FXY, is rising and will continue to rise relative to all the other currencies as investors sell currencies and stocks to repay their 0.5% interest loans. Or alternatively, its fall over time will be less than the other currencies as all fall lower in a death spiral lower together.
Mike Mish Sheldon relates that we have passed through Peak Credit and many Deflationary Hurricanes are working their way throughout society.
One deflationary hurricane manifested today with GMAC credit, falling lower; it did not participate in the "hope for Fed lowering the interest rate rally". GMAC credit weekly, GKM, shows three black crows. GMAC no longer can lend and it means GM is finished.
Yes finished despite the Tom Walsh Detroit Free Press report that
The Detroit 3 Ask Up To $40 Billion In Loans: "Today's auto market is so volatile that GM, Ford and Chrysler cannot reliably predict how much help they will need from Washington to secure the big money to develop critical vehicles like GM's electric Chevrolet Volt, or retool to bring a slew of European small-car designs to the United States, as Ford is doing. But at least they have focused on access to capital as their most critical need, and communicated that to Washington. If these companies don't have access to money at reasonable interest rates, they won't survive long enough to worry whether they can meet the fuel-economy standards of 2020 or 2030".
Today's press coverage of the 'Big 3 Bailout Request' will quickly hasten the companies demise as suppliers ask for payment in advance of delivery, especially Chryslers collapse.
The economic truth is that the US automobile manufacturers are dead, dead and dead as Mike Mish Sheldon relates that the
Default Risk On GM, Ford, and Chrysler Hits 95%.
Economic nature "will find a way" to call debt lower; perhaps the rating agencies will downgrade the mortgage backed securities; perhaps "the way lower" will come from the current credit gridlock intensify causing greater bankruptcy; or perhaps the way lower will come lower from intensifying foreclosures; perhaps the Elliott Wave 3 Down in EUR/JPY will force the hand of yen carry traders to sell the financial stocks; or perhaps tomorrow the stocks will simply fall lower; but definitely, economic nature "will find a way" to call debt lower and stocks will fall.
Charts of south sea bubbled ETFs and stocksCharts show the end of the age of fiat wealth; these present as tremendous short selling opportunities:
HHK, Healthshares Cancer Weekly
XBI, Biotechnology Weekly
IHI, Medical Devices Weekly
SOHU, Sohu Inc, Chinese Internet Weekly
EDU, New Oriental, Chinese Education Weekly
LTC, LTC Properties
A number of ETFs or their stock equivalents were popped higher; like popcorn in the popper, they have popped and make for bear food; bears eat these; these are called bear foodA lot of these have debt or are debt related; the Federal Reserve Announcement Rally rallied the most financially offending ETFS and stocks.
IYF, Financial
FNM, Fannie Mae
ABK, Ambac, bond guarantor
MBI, MBIA, bond guarantor
WB, Wachovia bank, home loan lender
RF, Regions Financial, home loan lender
AIG, a leading insurance company loaded by sub prime debt.
RWR, REITS, got popped up to 200 day moving average.
KCE, Investment banking, got popped up to 50 day moving averge.
TUR, Turkey; it has manifesting a massive island reversal candlestick.
QQQQ, Nasdaq, got popped up to resistance.
XLI, Industrials, got popped to resistance.
PBS, Dynamic Meida
BJK, Gaming
XRT, Retail
PEJ, Leisure and entertainment
ROB, Global luxury
IYC, Consumer services
XLY, Consumer discretionary
KBE, Banks
KIE, Insurance
RZV, Small Cap Value
IYR, Real Estate
The Russell 2000,
IWM, rose to almost 72; a level that I have covered quite a bit in my blog; this is the apex of a 'broadening top pattern' that goes back many months; and is strong resistance for the Russell 2000.
We have attained Peak Currencies and Peak DollarWith the EUR/JPY,
FXE:FXY, that is the yen carry trade having unwound
we have passed through Peak CurrencyWorld Currencies,
DBV, has fallen lower.
We are
now at Peak DollarUS Dollar,
$USD, closed at just under $74 which provides full retracement and strong resistance.
The economic forces that are at work now to drive the US dollar lower, will act to pull the stock market down as well.
Elaine Meinel Supkis commentary on the "true and undeniable nature of inflation"Note the last sentence in the Briefing.com commentary above: "The FOMC believes that inflation will moderate later this year and in 2009".
It was that concept that enabled the stock market to rally today after the Fed announcement.
In timely fashion Elaine Meinel Supkis remarks in article
Goddess Of Inflation Slips Out Of Sight Again, reveal the truth about inflation, which the Fed disregards and the Austrian Economists deny.
Today we look back into the not-so-murky past to see how insidious inflation can be. Today, the markets rejoice because they imagine they all can have fun and games by making funny money deals. Commodities are down! Well, this is not a new situation. It is an exact mirror of the great inflation years of 1970-1980. Also, I include the entire Federal Reserve press release about opening wider, the funny money window. This is inflationary. In the extreme. We all must understand that inflation, being a crafty goddess, looks 3 years into the future, not 3 months.
The Federal Reserve opened even wider, the temporary lending window they blasted into the side of the reserve vaults last Thanksgiving. At that time, note how they said it was all for just a few months to help everyone over a small glitch in banking systems collapsing. I laughed sardonically at that notion. The goal was, back then and today, to retrieve the lovely status quo of the Greenspan 1% lending era. Cheap loans, lots of dollars being made out of thin air, the Japanese carry trade, wild US real estate and stock markets, etc. This fabled time where the government of the US empire cut taxes, raised spending and went totally wild is now our ideal. All parties are most anxious to regain this glorious status quo. The idea that it is now history and will remain history, ie, in the past, is hard to accept. But until we finally accept reality, we will see inflation. For this is the only way of getting the machinery going again!
But inflation will kill the economy. So we try all sorts of schemes while making the funny money window wider. As usual, History tells us very clearly, inflation doesn't simply take off and that is that. She is probably the most wily of the monetary goddesses. She wears many disguises. The gnomes absolutely love her. She always makes them rapidly 'rich' and allows them to merrily bid up everything they want, carelessly and joyously. She moves silently with the old, raddled hag, Debt. Together, the lithesome, swift, smiling Inflation goddess holds grim Debt's hand and they move in tandem. Debt grows when lending is cheap. As Debt grows fatter, Inflation grows wings!
I was fresh out of Europe and very aware of the dying dollar. I was alarmed and shocked and warned everyone that the weak dollar was going to give us future problems. Every time inflation surged from 1970-1980, all sorts of schemes and plots were launched including very draconian ones like the infamous Nixon wage/price freeze, for example. Each of these schemes ultimately failed and each time, Inflation was stronger and swifter and nastier. Easy rule of thumb: the more one suppresses Inflation's speed artificially while still grinding out more 'money' the worse she is when she returns for more blood.
Squeeze US workers, run huge trade deficits and gaping, horrific government deficits funded nearly entirely by foreigners!
Why foreigners? So it would be 'off the books'! Inflation was literally exported. FOREX reserves across the planet bulged with excess US dollars. But the foreigners didn't mind, they were also the lenders who allowed this on every level. And benefitted from this new system that took the 1982 inflation and HID it from view! Now, it comes out in the open like clockwork, wave after wave. We are in the second inflationary wave since 1982. It is slipping away and people are now happy. 'It is over!' they shout on TV.
Well, it is NOT over at all! It is gathering force back underground and offshore.
Like the 4 inflation waves of the Stagflation Decade, the money destruction of bankruptcies and retractions in industry and trade cause the underlying inflation to moderate...slightly. But since the central bankers are very anxious to keep up the lending and increase debt, no sooner has this been accomplished when they boost debt and create a flood of funny money to bring prices of all ASSETS back up again. This, in turn, causes COMMODITY inflation!
(And she quotes the The Food and Agriculture Organization of the United Nations leads international efforts to defeat hunger (FAO.org) white paper
'Commodity Prices, Exchange Rates and the International Monetary System' by Dr Robert Mundell University Professor of Economics Columbia University 1999 Nobel Prize in Economic Science)
Dr Robert Mundell: I want to conclude by emphasizing that the current international monetary arrangements are far from optimal. They do not constitute a system. If the Balkanized world were suddenly transformed into a centralized empire, its first act would be to create a common currency that would be acceptable everywhere, with a great improvement in potential welfare. In the absence of a hegemonic empire, monetary efficiency depends on cooperation which in turn requires a world at peace that can be enforced. The end of the Cold War opened up a new era of globalization and the emergence of a global economy. As Paul Volcker has said, a global economy needs a global currency.
Elaine Meinel Supkis: HAHAHA. A global currency! Always, this is the most solvent empire. They determine the common trade currency. When they lose this, we get raging inflation and howling trade storms. The US is a declining empire. Its industrial base, in ruins. Its credit, in tatters. To paraphrase Monty Python's 'Meaning of Life'. The dream of a global currency is the dream of France and Germany and the euro is still amazingly strong but the political and economic power of Europe is not up to the task. This is because it is a lose, barely functional confederation. History tells us, confederations are bad at running global empires. This is why I expect China to pick up history's baton and wield it. The US cannot be the keystone currency value if we are deep, deep, deep in debt to the Chinese and Japanese empires. It is utterly impossible and we should end it swiftly while we have a chance.
Investment ApplicationGold, $GOLD, closed at $886 and
is still in outbreak since its May 1, 2008 price of $850 when institutional investors traded out of the financial stocks,
IYF, and went long with the yen carry traders to invest in CRB commodity futures, mutual funds and ETFs. It was on that date that the world entered into Kondratieff Winter.
Despite gold's fall today, the investment demand for gold remains as seen in the following ratios:
Gold relative to stocks
GLD:VTIGold relative to commoditioes GLD:RJI
Gold realative to oil GLD:USO
Gold relative to currencies GLD:DBV
gold relative to Treasuries, GLD:TLT
Given that we have passed through Peak Credit, and Peak Currencies; and given that we have arrived at Peak Dollar .... Gold,
$GOLD, despite having fallen to $886; and having the potential to fall to $870 or $850, will arise to be the international currency Dr. Robert Mundell calls for.
Yes, the gold ETF,
GLD, can easily fall to $84 or $83.
Those who have gold will be wealthy; and those who do not have gold will be pauperized.
The weekly chart of gold relative to the Yen,
$GOLD:FXY, is most significant in understanding that gold goes beyond a commodity to being a currency. The currency traders used the Yen, the Euro, the Australian Dollar, and the Canadian Dollar, to take gold higher in response to the Citigroup CDO Bust of October 7, 2008. And then then in May 2008, the institutional investors traded out of the financial stocks,
IYF, to invest in gold.
Now, that the currencies have died,
gold is "own its own", this is especially the case given that oil, USO, is likely to fall lower.
A factor that will sustain and drive gold higher is rising market place interest rates; when ever the central are below market place interest rates, gold by nature bubbles higher.
I also favor gold because it is an "investment safe haven" in times of political and economic turmoil.
It is critical to understand that a Western World Government is a matter of historical fact and that it is the ruling political power in Euro Asia and in the North American continent.
The Western World Government was established by a framework agreement of European and US leaders on April 30, 2007 and was announced at the
EU US Summit of April 30, 2007The framework agreement was based upon success from prior meetings as documented by a number of sources such as
Sumario: June 23, 2003: EU-US Summit - Washington, 25 June 2003 (Brussels) and
Press Release of 6-20-2005 EU-US SummitGiven the framework agreement announced by the leaders, principles of global governance now supersede Constitutional law and national laws.
I have written a lot about multiple systemic risk potential events such as in the article
Tax Exempt Mutual Fund Investors Could Suffer More Than Other Investors When The Coming Financial Breakdown Starts.
When the systemic risk event materializes, a financial emergency will turn into a greater political and economic emergency where principles of global governance security and prosperity will be enforced.
The
EU US Western World Government Graduated It First Police Force Class in Garmisch Germany on July 31, 2008. The class prepared forty two military and civilian emergency management officials from 25 countries to address, prepare for and respond to catastrophic events. It took an all-hazards approach to the developing field of civil security which includes civil defense, homeland security and crisis management. For years, many nations lacked a formal framework for the concept of civil security; but now civilian military cooperation and international cooperation is the announced ethic and way of dealing with catastrophic events.
The trans-Atlantic partnership and trans-world leadership and means are now in place to deploy military peacekeeping forces anywhere in the European and North American Continent to deal with evolving political and economic emergency.
Such a deployment will certainly favor those invested in gold.
I recommend that one have a diversified wealth preservation investment strategy; it's much like having a three legged stool:
1) gold at BullionVault.com and
2) gold at GoldMoney.com and
3) ETFs and mutual funds
GLD, SKF, RYWJX, and TBT, in a trust account and not a brokerage account.
The chart of
SKF, in late day trading shows how it has been beaten down, presenting the opportunity for an invesment.
For the wealthy, I strongly recommend opening a Forex currency trading account and going short EUR/JPY, and short USD/JPY which closed at 108.37 is strong resistance; it particularly fits well into my investment maxim: "In a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength".
Yes, the wealthy
should take note of the scientific investment research: The author in
Calendar Yen Trading Patterns provides historical record that EUR/JPY and USD/JPY is frequently down in the month of August; well, we are already one week into August; the seasonal drop in both of these currency pairs, will awesomely exasperate the unwinding that is just now starting to occur in stocks and currencies. Said another way: "The mother of all Elliott Wave 3 Downs is at hand in the EUR/JPY and the USD/JPY".
WIDGETIZE