Across the globe, financial markets are falling like dominos, one by one.
As America and other developed nations struggle to recover from the financial crisis, the ongoing challenge now starts to claim casualties in multiple asset classes around the world.
Let’s take a look at the dominos which have recently fallen and those that could be next in line:
Domino #1: Apple Computer…
Domino #2: Gold…
Domino #3: U.S. Treasury Bonds…
Domino #4: U.S. Real Estate…
Domino #5: The Nikkei…
Domino #6: The U.S. stock market…
As dominos tumble around the world and with central bank support now in doubt, one can only wonder how long it might take for Domino #6 to fall. Wall Street Sector Selector remains in “red flag” status, expecting a high risk environment ahead.
Nationwide, seniors are living off of a median household income of $35,107, roughly 57% of the median income of their younger counterparts ages 45 to 64, according to an analysis of 2011 U.S. Census Bureau
ANALYST: ‘There Are So Many Dominoes Just Waiting To Topple That We’re No Longer Sure What To Watch’
Here’s Wilkinson’s take:
The pain continues across the Emerging Globe. Having fallen to a two-year low earlier in the week, Brazil’s benchmark Ibov index is lower again today. Mexico’s stocks slid by 2.00% in the face of rising volatility in US stocks. The CBOE Vix index is fast-approaching last week’s peak and the highest since mid-April.
And then there is the little matter of the yen, whose vacillations continue to trip-up US equity prices. As we noted late on Tuesday the Japanese unit was closing stronger than when it snapped the dollar’s grip last week. And more problematic was a broadening of the yen’s advance against the euro currency, British pound and the Aussie dollar. The dollar index just snapped to a two-month low midweek indicating a decidedly risk-off mood and one that hardly supports the earlier return for risk-appetite signaled by a move higher for equity prices.
Finally, the S&P 500 has slowly returned to beneath Friday’s low – the low supported by an above consensus payroll reading. Failure to hold that level could arguably cause stocks to have a stab at the fear-inspired lows of last week at 1598.
There are so many dominoes just waiting to topple that we’re no longer sure what to watch.
Wilkinson flags the unwind in the short-yen trade as a source of weakness in U.S. stock prices. Click here to read why the dollar-yen exchange rate has become so important >
- Get ready for ‘ugly days’, 4% Treasury yields: O’Neill
- Pimco duck-dives the waves
- Bill Gross cuts Treasury holdings
- Brace Yourself: In a Shift, Interest Rates Are Rising
Australia’s GDP growth expanded merely 0.6% in the first quarter. This was after a 0.6% rise in Q4 2012. Meanwhile, there are a lot of people shorting the Australian dollar.
Minus export growth however, Societe Generale’s Albert Edwards writes that gross national expenditure (GNE) has fallen for two straight quarters.
“One of the biggest economic bubbles in history is now about to go into the Minsky masher,” writes Edwards. This refers to periods of speculation that lead to crisis, and was named after economist Hyman Minsky who wrote about the inherent instability of bull markets.
“Make no mistake – the Australian tide is going to be heading way out as China is about to have what our economist Wei Yao described as its’ Minsky moment’, or in layman’s terms, its day of reckoning! But even before China suffers this ‘moment’, final demand in the commodity dependent Western Australia (WA) has fallen into recession. The Australian Treasury’s preferred measure of activity, State Final Demand (SFD) contracted a striking 3.9% qoq (flat yoy) led by a sharp 10.7% qoq decline in private investment. This follows a 0.9% decline in 2012 Q4 (previously estimated to be 0.5%).”
Fierce Selloff in Emerging Market Currencies; India Intervenes to Stop Plunge in Rupee; Brazil Steps Up Real Intervention; Root Cause of Crisis
I’s hard not to laugh at the irony of recent central bank currency actions.
- After complaining for years about the strength of the Real, the Brazilian central bank stepped up intervention actions hoping to stop a plunge in the currency.
- Turkey now attempts to attract capital after taking measures for the past four years to stop the flow of money into the country.
- In India, the central bank seeks to stop a plunge in the Rupee which is at a record low of record low 58.95 to the dollar.
The Wall Street Journal reports Emerging-Market Currencies See Turnaround After Hefty Losses
Emerging Market Assets Suffer in Fierce Sell-Off
The Financial Times reports Emerging market assets suffer in fierce sell-off.
Root Cause of Crisis
By the way, all this extremely volatile currency action, as well as various equity and bond market bubbles, can be pinned entirely on central banks, fractional reserve lending, and lack of a gold standard.
These California Housing Flip Rates Are Some Of The Most Bubblicious Stats We’ve Seen In A Long Time
In May, Southern California’s rate hit 5.9%, the Bay Area notched 4.1% and the state averaged 5.3%.
The boom peak for all three was about 4.3%, reached in January 2005.
The rate reflects the percentage of properties on the market that were previously sold within the past six months.
Here’s the chart:
Michael Casey calls it the great rebalancing.
Some $6.5 billion was yanked out of emerging-market stocks and bonds last week, according to data provider EPFR Global, the biggest outflows since September 2011. Those numbers will likely be even bigger this week.
And the trigger? Nothing more than a general sense within bond markets that the Federal Reserve is preparing to “taper” its bond-buying program. Let’s be clear, the Fed’s not planning to outright end its “quantitative easing” program; it’s merely thinking about how and when to dial down the bond buying from the massive $85 billion it currently conducts each month. Even so, when combined with signals of no further action from the European Central Bank and the Bank of Japan this past week, Fed Chairman Ben Bernanke’s tapering hints last month have convinced global investors that the jig is up.
The following are 18 signs that massive economic problems are erupting all over the planet…
#1 The eurozone is now in the midst of its longest recession ever. Economic activity in the eurozone has declined for six quarters in a row.
#2 Italy’s economy has now been contracting for seven quarters in a row.
#3 Industrial production in Italy has fallen for 15 months in a row. It has now fallen to its lowest level in about 25 years.
#4 The number of people that are considered to be “seriously deprived” in Italy has doubled over the past two years.
#5 Consumer confidence in France has just hit a new all-time low.
“I’ve sent CVs everywhere, I come to the unemployment agency every day, for 3 or 4 hours to look for work as a truck driver and there’s never anything,” said 42-year old Djamel Sami, who has been unemployed for a year, leaving a job agency in Paris.
#7 Unemployment in the eurozone as a whole has just hit a brand new all-time record high of 12.2 percent.
#8 Youth unemployment continues to soar to unprecedented heights in Europe. The following is from an article that was recently posted on the website of the Guardian that detailed how bad things are getting in some of the worst countries…
In Greece, 62.5% of young people are out of work, in Spain it’s 56.4%, then Portugal with 42.5%, and then Italy with 40.5%.
#9 Youth unemployment is being partially blamed for the worst rioting that Sweden has seen in many years. The following is how the Daily Mail described the riots…
Sweden is reeling after a third night of rioting in largely run-down immigrant areas of the capital Stockholm.
In the last 48 hours violence has spread to at least ten suburbs with mobs of youths torching hundreds of cars and clashing with police.
It is Sweden’s worst disorder in years and has shocked the country and provoked a debate on how Sweden is coping with youth unemployment and an influx of immigrants.
#10 An astounding 10 percent of all banking deposits were pulled out of banks in Cyprus during the month of April alone.
#11 Economic growth in India is the slowest that it has been in an entire decade.
#12 Suddenly Australia is experiencing some tremendous economic challenges. The following quotes are from a recent Zero Hedge article…
-“We’re seeing a much sharper contraction in the Australian economy than we’d anticipated four or five months ago”. Coffey MD, John Douglas. The engineering group has seen its shares, which traded above $4 in 2007, hit 10c last week.
-“By 10am, the Fitness First gym in the city is packed full of brokers who’ve had a gutful of sitting at their desk doing nothing – salary cuts are starting and next it will be jobs” Perth broker
-“Oh mate, the funding market is dead. You are now seeing a few deeply discounted rights issues for those that are reaching desperate levels ….. liquidity has completely disappeared” Perth broker
#13 The financial system in Japan is beginning to spin wildly out of control. The Japanese stock market has now declined about 15 percent from the peak, and many believe that the yen will continue to get weaker and that interest rates in Japan will start to rise significantly.
#14 Global cash flow is declining at a rate not seen since the last recession. This indicates that we could be headed for a global credit crunch.
#15 Real wages continue to decline in the United States. Even though we are being told that the U.S. is experiencing an “economy recovery”, real weekly earnings have declined from $297.79 in 2010 to $295.49 in 2011 to $294.83 in 2012. (The preceding calculation is based on 1982-1984 dollars)
#16 Wall Street is buzzing about the fact that “the Hindenburg Omen” appeared at the end of last week. So exactly what is “the Hindenburg Omen”? The following are the criteria that are used to determine whether it has appeared or not…
1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.
2. The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.
3. That the NYSE 10 Week moving average is rising.
4. That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.
5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).
When the Hindenburg Omen makes an appearance, it supposedly means that the U.S. stock market is likely to experience a serious decline within the next 40 days.
#17 As I wrote about the other day, the SentimenTrader Smart/Dumb Money Index is now the lowest that it has been in more than two years. That means that lots of “smart money” has been getting out of the market and lots of “dumb money” has been pouring in.
#18 Margin debt on the New York Stock Exchange has set a new all-time high. The following is from a recent Market Oracle article…
Margin debt—that’s the amount of money borrowed to purchase stocks—on the New York Stock Exchange (NYSE) reached its all-time high in April. Margin debt on the NYSE registered at $384.3 billion as the key stock indices hit new record-highs. (Source: New York Stock Exchange web site, last accessed May 29, 2013.) The highest margin debt ever reached prior to this was in July of 2007, when it stood just above $381.0 billion. At that time, just like today, the key stock indices were near their peaks and “buy now before it’s too late” was the prominent theme of the day
Whenever margin debt spikes like this, a stock market crash almost always follows. If you doubt this, just check out the chart in this article.
Wall Street has had a good couple of years, but it has been a “false prosperity” that has been pumped up by reckless money printing by the Federal Reserve. Just like all of the other stock market bubbles that we have seen in recent years, this one is going to burst too. And as Marc Faber recently pointed out, this bubble has been particularly beneficial to the wealthy…
The Fed has been flooding the system with money. The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert. Instead, it creates dangerous excesses in countries and asset classes. Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market – things like stocks, bonds, art, wine, jewelry, and luxury real estate.
Money-printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins.
“The global economy experiences a recession every six years or so, and the frequency of global recessions tends to increase when global indebtedness is high and falling as opposed to when indebtedness is low and rising,”
CLICK ON CHART TO ENLARGE
“The Perfect Storm” for most portfolios would be… stocks and bonds fall at the same time!
The above 2-pack reflects a couple of key support lines for bonds and stocks are being pushed on very hard! If this action continues, it would hurt the value of many portfolios!
This odds of this happening are very low….the impact would be very large if the breakdowns take place!