Two China ETFs Bucking the Downtrend
June 18th 2013 at 2:22pm by Paul Weisbruch, Street One Financial
We have seen some evidence of bottom fishing in the largest China based equity ETF, FXI (iShares FTSE China 25 Index, Expense Ratio 0.72%) via options linked to the ETF, and this gives us good reason to examine the space in further detail.
FXI has lagged severely year to date in terms of performance, and China has greatly weighed on the overall returns of broad based Emerging Markets funds such as EEM (iShares MSCI Emerging Markets, Expense Ratio 0.69%) and VWO (Vanguard Emerging Markets, Expense Ratio 0.18%) where it has a substantially heavy weighting (18.67% of EEM and 18.80% of VWO).
Additionally, FXI has lost more than $1.8 billion in assets under management via redemption activity thus far in 2013 (total AUM is $5.9 billion currently).
Two China based funds have bucked the trend of weakness that has prevailed mainly across larger cap Chinese equities (particularly those in the Financial and Communication Services sectors), and have actually registered impressively positive returns thus far in 2013. PGJ (PowerShares Golden Dragon China Portfolio, Expense Ratio 0.60%) leads the way, and the fund remains rather small with $188 million in assets under management despite debuting back in 2004.
From a portfolio composition standpoint, the fund has a much different make-up than say FXI, as the heaviest sector weighting is devoted to Technology (46.48%), followed by Health Care (10.52%).
Notable Chinese tech names including NTES, BIDU, SINA, and SOHU are among the top ten holdings in the fund for example. [China ETFs Weak on Credit Jitters]
Another China based equity ETFs that have shown some green in terms of performance thus far in 2013 is ECNS (iShares MSCI China Small Cap Index, Expense Ratio 0.60%), which is tiny as well compared to FXI (ECNS has only $35 million in AUM and averages about 15,000 shares traded daily). ECNS has its heaviest sector exposure to Industrials (18.13%), followed by Consumer Discretionary (18.04%) and Technology (15.64%).
Tuesday, June 18, 2013
$BPSPX
Does this look strong to you?
| Symbol | Last | Original Price | Cost | Shares | Current Value | Gain (Loss) | |
| BWP | $ 29.99 | $ - | $0 | 0 | $ - | 0 | |
| CQQQ | $ 26.53 | $ - | $0 | 0 | $ - | 0 | |
| DRV | $ 15.28 | $ - | $0 | 0 | $ - | 0 | |
| DSLV | $ 59.90 | $ - | $0 | 0 | $ - | 0 | |
| DUST | $ 95.31 | $ - | 0 | ||||
| ECNS | $ 43.40 | $ 45.28 | $90,560 | 2000 | $ 86,800 | -3760 | |
| EPHE | $ 36.19 | $ - | $0 | 0 | $ - | 0 | |
| EPP | $ 45.91 | $ - | $0 | 0 | $ - | 0 | |
| EPV | $ 21.45 | $ 21.07 | $21,070 | 1000 | $ 21,450 | 380 | |
| FAZ | $ 32.36 | $ - | |||||
| INDL | $ 14.58 | $ 17.11 | $85,550 | 5000 | $ 72,900 | -12650 | |
| NRGY | $ 24.03 | $ - | $0 | ||||
| NRP | $ 22.50 | $ - | $0 | 0 | $ - | 0 | |
| PGJ | $ 21.64 | $ - | $0 | 0 | $ - | 0 | |
| PIE | $ 18.86 | $ - | $0 | 0 | $ - | 0 | |
| RUSS | $ 19.75 | $ 22.70 | $11,350 | 500 | $ 9,875 | -1475 | |
| TMV | $ 60.26 | $ - | $0 | 0 | $ - | 0 | |
| TRP | $ 46.85 | $ - | $0 | 0 | $ - | 0 | |
| TVIX | $ 3.03 | $ 3.36 | $252,146 | 75000 | $ 227,250 | -24896 | |
| TZA | $ 29.87 | $ 30.82 | $77,050 | 2500 | $ 74,675 | -2375 | |
| UGAZ | $ 24.82 | $ 28.10 | $285,961 | 10175 | $ 252,544 | -33417.5 | |
| YINN | $ 17.09 | $ 17.96 | $89,800 | 5000 | $ 85,450 | -4350 | |
| $913,487 | $ 830,944 | -82543.5 |
Maybe Bernanke will save us--I doubt it, but I've been wrong before. Anyway, PM still going down. Don't believe there is any hope for Japan. Looking for China and its Asian partners to shine in the new rising sun. Europe and Russia to tank soon. And India still looks good to me. Natural gas rising. Be happy when tomorrow is over. Don't believe anybody controls the market.
Best of luck to all.
When Margin Debt Goes Over 2.25% Of GDP, The Stock Market Always Crashes
Jun 18 2013, 02:55 by: Michael T. Snyder
includes: DIA, QQQ, SPY
What do 1929, 2000 and 2007 all have in common? Those were all years in which we saw a dramatic spike in margin debt. In all three instances, investors became highly leveraged in order to 'take advantage' of a soaring stock market. But of course we all know what happened each time. The spike in margin debt was rapidly followed by a horrifying stock market crash.
Well guess what? It is happening again. In April (the last month we have a number for), margin debt rose to an all-time high of more than $384 billion. The previous high was $381 billion which occurred back in July 2007. Margin debt is about 29% higher than it was a year ago, and the S&P 500 has risen by more than 20% since last fall. The stock market just continues to rise even though the underlying economic fundamentals continue to get worse. So should we be alarmed? Is the stock market bubble going to burst at some point? Well, if history is any indication we are in big trouble. In the past, whenever margin debt has gone over 2.25% of GDP, the stock market has crashed. That certainly does not mean that the market is going to crash this week, but it is a major red flag.
The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world. Some believe that a high level of margin debt is a sign that 'investor confidence' is high and that the rally will continue. The following is from a recent article in the Wall Street Journal.
The rising level of debt is seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. The latest rise has been fueled by low interest rates and a 15% year-to-date stock-market rally.
Others, however, consider the spike in margin debt to be a very ominous sign. Margin debt has now risen to about 2.4% of GDP, and as the New York Times recently pointed out, whenever we have gotten this high before a market crash has always followed.
The first time in recent decades that total margin debt exceeded 2.25% of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom - when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly.
Every time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed. Will we escape a similar fate this time?
What makes all of this even more alarming is the fact that a number of things that we have not seen happen in the U.S. economy since 2009 are starting to happen again. For much more on this, please see my previous article entitled "12 Clear Signals That The U.S. Economy Is About To Really Slow Down".
At some point the stock market will catch up with the economy. When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money.
And there are certainly a lot of prominent voices out there that are warning about what is coming. For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year.
If anything has changed yet in 2013, we certainly do not see it. Despite the early post-fiscal cliff rally, this is the same beast we rode to the 2007 highs for the Dow Industrials. The U.S. stock market is over leveraged, overpriced and has been commandeered by mechanical forces to such an extent that all holding periods are now affected by more risk than at any time in history.
Unfortunately, most Americans never get to hear such voices. Instead, most Americans rely on the mainstream media to do much of their thinking for them. And right now the mainstream media is insisting that we are not in a stock market bubble.
Forbes: "Why Stocks Are On Solid Footing And This Is No Bubble"
ABC News: "AP Survey: Economists See No Stock Market Bubble"
Businessweek: "Prognostications: It's Not a Stock Bubble"
Yahoo: "This Is NOT a Stock Bubble! Says Ben Stein"
MarketWatch: "Is a stock bubble coming? No, say economists"
So what do you think?
Do you believe that we are in a stock market bubble that is about to burst, or do you believe that everything is going to be just fine?
Jun 18 2013, 02:55 by: Michael T. Snyder
includes: DIA, QQQ, SPY
What do 1929, 2000 and 2007 all have in common? Those were all years in which we saw a dramatic spike in margin debt. In all three instances, investors became highly leveraged in order to 'take advantage' of a soaring stock market. But of course we all know what happened each time. The spike in margin debt was rapidly followed by a horrifying stock market crash.
Well guess what? It is happening again. In April (the last month we have a number for), margin debt rose to an all-time high of more than $384 billion. The previous high was $381 billion which occurred back in July 2007. Margin debt is about 29% higher than it was a year ago, and the S&P 500 has risen by more than 20% since last fall. The stock market just continues to rise even though the underlying economic fundamentals continue to get worse. So should we be alarmed? Is the stock market bubble going to burst at some point? Well, if history is any indication we are in big trouble. In the past, whenever margin debt has gone over 2.25% of GDP, the stock market has crashed. That certainly does not mean that the market is going to crash this week, but it is a major red flag.
The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world. Some believe that a high level of margin debt is a sign that 'investor confidence' is high and that the rally will continue. The following is from a recent article in the Wall Street Journal.
The rising level of debt is seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. The latest rise has been fueled by low interest rates and a 15% year-to-date stock-market rally.
Others, however, consider the spike in margin debt to be a very ominous sign. Margin debt has now risen to about 2.4% of GDP, and as the New York Times recently pointed out, whenever we have gotten this high before a market crash has always followed.
The first time in recent decades that total margin debt exceeded 2.25% of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom - when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly.
Every time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed. Will we escape a similar fate this time?
What makes all of this even more alarming is the fact that a number of things that we have not seen happen in the U.S. economy since 2009 are starting to happen again. For much more on this, please see my previous article entitled "12 Clear Signals That The U.S. Economy Is About To Really Slow Down".
At some point the stock market will catch up with the economy. When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money.
And there are certainly a lot of prominent voices out there that are warning about what is coming. For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year.
If anything has changed yet in 2013, we certainly do not see it. Despite the early post-fiscal cliff rally, this is the same beast we rode to the 2007 highs for the Dow Industrials. The U.S. stock market is over leveraged, overpriced and has been commandeered by mechanical forces to such an extent that all holding periods are now affected by more risk than at any time in history.
Unfortunately, most Americans never get to hear such voices. Instead, most Americans rely on the mainstream media to do much of their thinking for them. And right now the mainstream media is insisting that we are not in a stock market bubble.
Forbes: "Why Stocks Are On Solid Footing And This Is No Bubble"
ABC News: "AP Survey: Economists See No Stock Market Bubble"
Businessweek: "Prognostications: It's Not a Stock Bubble"
Yahoo: "This Is NOT a Stock Bubble! Says Ben Stein"
MarketWatch: "Is a stock bubble coming? No, say economists"
So what do you think?
Do you believe that we are in a stock market bubble that is about to burst, or do you believe that everything is going to be just fine?
Deleveraging Indicator
Forget The Hindenburg Omen, This Near-Perfect Deleveraging Indicator Is Omen Enough
Jun 17 2013, 15:38 by: Cyniconomics
includes: DIA, SPY 03:06 Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
There was plenty to puzzle over in last week's Treasury International Capital (TIC) report, which reveals cross-border financial flows for April.
I showed on Friday that net foreign sales of U.S. Treasuries (bonds, notes and bills) totaled $69.6 billion, shattering the previous record of $28.1 billion. I also showed that Japan's Treasury holdings fell by $61 billion after last October, which was roughly the same time that Abenomics was hatched and the Japanese stock market took flight.
But that's not all.
This morning I went back to the report for a closer look at cross-border, long-term security transactions. This category includes government bonds, corporate bonds and stocks. It usually shows that Americans are selling securities to foreigners - the flip side to the gaping U.S. current account deficit. We buy stuff from foreign exporters, and then most of our dollars find their way back to America in the form of security purchases (both U.S. securities and foreign securities that Americans sell back to global investors).
The measure that caught my eye in April's report - "Net Long-Term Security Transactions" - compares the amount of long-term securities that U.S. residents sold to foreigners to the amount that they've bought from foreigners. It's usually a positive number, indicating Americans are doing more selling than buying.
And here's a short summary of the highlighted periods (when America's cross-border buying approached or exceeded her selling):
July to September 1998. New York Fed orchestrates Long-Term Capital Management bailout; Russia defaults; S&P 500 drops 19% from its peak in mid-July to the end of August and then double-dips in early October before recovering.
July to September 2007. Quantitative equity managers suffer unprecedented losses; bank earnings collapse on subprime-related write offs; bear market begins in mid-October and the economy peaks two months later.
October 2008 to January 2009. Financial crisis triggers sharp contraction in global economy; S&P 500 falls to a low of 666 on March 9 before recovering.
June to July 2011. Debt ceiling negotiations run to the wire as some participants openly discuss the possibility of a U.S. default; S&P 500 peaks in early July and drops 19% to a low of just below 1100 in early October.
February 2013 to ? Did the S&P 500's May 21 close of 1669.16 mark the peak?
Just like April's record U.S. Treasury sales that I noted Friday, net cross-border transactions of long-term securities also sank to a new record when you consider the three month periods. And both records extend all the way back to the inception of TIC data in 1978.
It's hard to find an obvious trigger for this year's record cross-border buying. America's economy has been stronger than much of the rest of the world, and this should be strengthening the purchasing power of U.S. versus foreign investors. It seems a partial explanation at best, though, especially as America's current account deficit remained just below 3% of GDP in the first quarter.
And while most risky assets performed well through April, it's not clear that rising prices would have caused foreigners to sell their holdings to Americans.
What about quantitative easing? Is Fed-created liquidity distorting cross-border financial flows?
This may be the best explanation of all, but there's not a close fit between QE start and end dates and the peaks and troughs in the transactions data.
Regardless of what's happening underneath the surface, I suggest keeping an eye on upcoming data. If market volatility hasn't been enough to spook you over the past month or so, the TIC report should add to your caution.
Jun 17 2013, 15:38 by: Cyniconomics
includes: DIA, SPY 03:06 Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
There was plenty to puzzle over in last week's Treasury International Capital (TIC) report, which reveals cross-border financial flows for April.
I showed on Friday that net foreign sales of U.S. Treasuries (bonds, notes and bills) totaled $69.6 billion, shattering the previous record of $28.1 billion. I also showed that Japan's Treasury holdings fell by $61 billion after last October, which was roughly the same time that Abenomics was hatched and the Japanese stock market took flight.
But that's not all.
This morning I went back to the report for a closer look at cross-border, long-term security transactions. This category includes government bonds, corporate bonds and stocks. It usually shows that Americans are selling securities to foreigners - the flip side to the gaping U.S. current account deficit. We buy stuff from foreign exporters, and then most of our dollars find their way back to America in the form of security purchases (both U.S. securities and foreign securities that Americans sell back to global investors).
The measure that caught my eye in April's report - "Net Long-Term Security Transactions" - compares the amount of long-term securities that U.S. residents sold to foreigners to the amount that they've bought from foreigners. It's usually a positive number, indicating Americans are doing more selling than buying.
And here's a short summary of the highlighted periods (when America's cross-border buying approached or exceeded her selling):
July to September 1998. New York Fed orchestrates Long-Term Capital Management bailout; Russia defaults; S&P 500 drops 19% from its peak in mid-July to the end of August and then double-dips in early October before recovering.
July to September 2007. Quantitative equity managers suffer unprecedented losses; bank earnings collapse on subprime-related write offs; bear market begins in mid-October and the economy peaks two months later.
October 2008 to January 2009. Financial crisis triggers sharp contraction in global economy; S&P 500 falls to a low of 666 on March 9 before recovering.
June to July 2011. Debt ceiling negotiations run to the wire as some participants openly discuss the possibility of a U.S. default; S&P 500 peaks in early July and drops 19% to a low of just below 1100 in early October.
February 2013 to ? Did the S&P 500's May 21 close of 1669.16 mark the peak?
Just like April's record U.S. Treasury sales that I noted Friday, net cross-border transactions of long-term securities also sank to a new record when you consider the three month periods. And both records extend all the way back to the inception of TIC data in 1978.
It's hard to find an obvious trigger for this year's record cross-border buying. America's economy has been stronger than much of the rest of the world, and this should be strengthening the purchasing power of U.S. versus foreign investors. It seems a partial explanation at best, though, especially as America's current account deficit remained just below 3% of GDP in the first quarter.
And while most risky assets performed well through April, it's not clear that rising prices would have caused foreigners to sell their holdings to Americans.
What about quantitative easing? Is Fed-created liquidity distorting cross-border financial flows?
This may be the best explanation of all, but there's not a close fit between QE start and end dates and the peaks and troughs in the transactions data.
Regardless of what's happening underneath the surface, I suggest keeping an eye on upcoming data. If market volatility hasn't been enough to spook you over the past month or so, the TIC report should add to your caution.
China
Foreign investment up for 4th month
FOREIGN direct investment in China rose for the fourth consecutive month in May, with increases from European countries and the United States, the Ministry of Commerce said today.
FOREIGN direct investment in China rose for the fourth consecutive month in May, with increases from European countries and the United States, the Ministry of Commerce said today.
Monday, June 17, 2013
$UGAZ comes out of bottom
Not much happened today. No technical damage to bearish positions. Downside should resume soon--if it already hasn't started. More tomorrow when the market talks to us. China and India were stronger today. Still waiting for Europe to erupt.
Best of luck.
Best of luck.
Sunday, June 16, 2013
QQQ Weekend update
From Nifty Charts
QQQ Weekend update:
-->
QQQ Weekend update:
- QQQ Weekly chart shows weakness as price falls back into the weekly channel.
- For next week 20 week SMA could get tested if price falls below 71.47
- Crucial support in daily chart is 50 Day SMA whcih must be broken for a bigger fall to start. Bulls need to break above the resistance line shown in last chart to avoid correction for now.
Dumb and Dumber Tax Hikes in Italy; Grand Coalition Splintering; Another Italy Convulsion Coming Up
From MISH
Dumb and Dumber Tax Hikes in Italy; Grand Coalition Splintering; Another Italy Convulsion Coming Up: One of the dumbest things a country can do in a recession is raise taxes. Yet, after pronouncing the end of austerity, Italy's "grand coalition" government, led by Enrico Letta, is going to hike the VAT.
Why? It seems they need to hike the VAT to pay for a decrease in property taxes.
Recall that Silvio Berlusconi was only willing to take part in Letta's grand coalition on condition property tax hikes were rolled back. Letta agreed to do that, but now Letta says Italy needs revenue hikes to make up for it.
Grand Coalition Splintering
Curiously, the International Business Times reports Enrico Letta's Grand Coalition Could End Italy's 'Lingering Civil War' .
What nonsense. Letta's "grand coalition" is burnt toast already.
Eurointelligence gets it right.
I agree with the following comments from Eurointelligence: "A rise in VAT is probably the worst thing that can happen right now ... Italy will miss the 2.9% deficit target, since the economy is likely to go into another convulsion once VAT is raised."
Beppe Grillo 5-Star Movement Implodes
As a side note the 5-Star movement of Beppe Grillo is imploding as well.
Reader "AC", from Italy, predicted the rise of Beppe Grillo well in advance of any mainstream media coverage, also told me "Grillo has peaked" shortly after the national election. She called that one correctly as well.
Infighting is everywhere in Italy now.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Dumb and Dumber Tax Hikes in Italy; Grand Coalition Splintering; Another Italy Convulsion Coming Up: One of the dumbest things a country can do in a recession is raise taxes. Yet, after pronouncing the end of austerity, Italy's "grand coalition" government, led by Enrico Letta, is going to hike the VAT.
Why? It seems they need to hike the VAT to pay for a decrease in property taxes.
Recall that Silvio Berlusconi was only willing to take part in Letta's grand coalition on condition property tax hikes were rolled back. Letta agreed to do that, but now Letta says Italy needs revenue hikes to make up for it.
Grand Coalition Splintering
Curiously, the International Business Times reports Enrico Letta's Grand Coalition Could End Italy's 'Lingering Civil War' .
What nonsense. Letta's "grand coalition" is burnt toast already.
Eurointelligence gets it right.
Il Corriere della Sera and other Italian papers are leading with the news that finance minister Fabrizio Saccomanni and another cabinet ministers said yesterday that Italy cannot simultaneously afford to cut the IMU housing tax and not implement an envisaged rise in VAT, and would thus opt to raise VAT.Another Italy Convulsion Coming Up
In its coverage, La Repubblica writes that Saccomanni is now becoming a controversial within the coalition, as Silvio Berlusconi appears to appear chosen him as a target for his verbal attacks. The VAT increase is threatening to drive a gulf between the two largest parties, the PD and Berlusconi’s PdL.
I agree with the following comments from Eurointelligence: "A rise in VAT is probably the worst thing that can happen right now ... Italy will miss the 2.9% deficit target, since the economy is likely to go into another convulsion once VAT is raised."
Beppe Grillo 5-Star Movement Implodes
As a side note the 5-Star movement of Beppe Grillo is imploding as well.
Two more MPs have left the Movimento 5 Stelle parliamentary group, the Huffington Post Italia reports, bring the total number to five. Lawmakers Alessandro Furnari and Giuliana Labriola have quit M5S after internal fights, accusing Grillo of being a dictator and the party for failing to make substantive proposals. In an interview, Furnari said the M5S was dying due the Grillo’ mix of inexperience, rawness and vulgar display of ideas without content.Support for Grillo is now down to 14% from over 25% in the election (See Youth Vote Propels Five Star Movement Into First Place as Largest Political Party in Italy).
Grillo, meanwhile, has gone again on a verbal rampage. As reported by Il Corriere della Sera, he called the current Italian Parliament an "empty can of tuna." He said it was illegitimate because it was elected under an electoral law that he called is unconstitutional.
Reader "AC", from Italy, predicted the rise of Beppe Grillo well in advance of any mainstream media coverage, also told me "Grillo has peaked" shortly after the national election. She called that one correctly as well.
Infighting is everywhere in Italy now.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Germany Election Update: AfD Soars in Online Poll; Is Merkel Toast?
From MISH
Germany Election Update: AfD Soars in Online Poll; Is Merkel Toast?: Reader Bernd from Germany (not Bernd Lucke, AfD anti-euro party leader) has emailed me several times since Friday about polls conducted by the German tabloid Bild.
Emphasis must be placed on the the word "tabloid" because intellectuals and academics do not tend to read the paper, nor even acknowledge its existence.
Nonetheless, Bild is the number one readership paper in Germany, by far, with about 20 million readers daily. And a poll is a poll, not a slanted news article.
The Bild is not a supporter of AfD in the least. If the poll is pro-Afd biased, it surely was not by the Bild.
With that backdrop here are a few emails from reader Bernd.
Friday June 14
Online polls can be manipulated but Bernd counters with "To vote several times you need to clear the cache and clear the cookies each time. I guess 99% of Bild online readers do not know how to do that."
Still, the results are not scientific and a few very dedicated people could easily have hijacked the results. However, "could" and "did" are not the same thing.
I see this as very similar to the rise of the Five-Star Movement (M5S) in Italy, where the mainstream media gave M5S no chance, yet M5S ended up as the largest political party in Italy at election time.
If AfD gets as much as 10% of the vote and FDP does not clear the 5% threshold (both are likely), Angela Merkel will not survive the coalition building process or will be dramatically weakened in the process.
Wahl-O-Meter Update
Wahl-O-Meter shows support for AfD at 7.9% with FPD dropping to 4.5%. With the threshold for parliament participation at 5% it is FPD, not AfD that is on the bubble.
Political Party Explanation
Please see Understanding German Politics for an explanation of the German political parties and what they stand for.
Prediction
I am sticking with my April 23 prediction Merkel Loses Chancellorship in September as Support for AfD Soars
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Germany Election Update: AfD Soars in Online Poll; Is Merkel Toast?: Reader Bernd from Germany (not Bernd Lucke, AfD anti-euro party leader) has emailed me several times since Friday about polls conducted by the German tabloid Bild.
Emphasis must be placed on the the word "tabloid" because intellectuals and academics do not tend to read the paper, nor even acknowledge its existence.
Nonetheless, Bild is the number one readership paper in Germany, by far, with about 20 million readers daily. And a poll is a poll, not a slanted news article.
The Bild is not a supporter of AfD in the least. If the poll is pro-Afd biased, it surely was not by the Bild.
With that backdrop here are a few emails from reader Bernd.
Friday June 14
Hi Mish,Saturday, June 15
I hope you are well!
Today’s “Bild Zeitung” online poll show support for AfD above 20%, way higher than in any official poll.
If the chancellor could be elected directly, Angela Merkel would beat Peer Steinbrück by 63% to 37%. However, we do not elect the Chancellor directly. The party picture is what matters.
Merkel's current coalition (CDU/CSU/FDP) would only get 26% of the vote, not enough for her to remain as Chancellor without support from AfD or SPD.
Interestingly, the Bild did not even mention AfD in any coalition, a possible indication that Bild did not expect AfD to score anything above 5%.
That said, I caution that "Bild online" does not give a representative result for the entire German electorate. It can, at best, give a trend or tendency. The results suggest that AfD might be more popular than let on by German media.
Thank you, Mish, for your excellent observations on many topics not covered properly by other commentators.
Bernd
Hi Mish,Sunday, June 16
"Bild Online" has decided to repeat the poll again, this time on its home page.
Today's poll follows an article by the “Bild-Federal Government Team”, which makes a prediction for the coming elections. Their prediction is that only a CDU/CSU/SPD coalition can be formed – under Merkel’s leadership.
However, Steinbrück had made it clear that he won’t be available under Merkel’s leadership.
The online poll at 8:45 shows 170,000 participants:
CDU/CSU - 37%
AfD - 20%
SPD - 18%
Die Grünen - 06%
Die Linke - 06%
FDP - 05%
Others - 04%
Piraten - 03%
The Bild official prediction is that AfD won’t make it into Parliament, due to the 5% barrier.
Bernd
Hi MishMish Comments
The poll is now closed and AfD came third with 15%.
This is quite remarkable and would confirm my opinion, that at the moment, AfD has enough support to easily pass the 5% barrier. I told you way back, I see a potential for up to 12% for AfD. I see no need to change my mind at this point.
Bernd
Online polls can be manipulated but Bernd counters with "To vote several times you need to clear the cache and clear the cookies each time. I guess 99% of Bild online readers do not know how to do that."
Still, the results are not scientific and a few very dedicated people could easily have hijacked the results. However, "could" and "did" are not the same thing.
I see this as very similar to the rise of the Five-Star Movement (M5S) in Italy, where the mainstream media gave M5S no chance, yet M5S ended up as the largest political party in Italy at election time.
If AfD gets as much as 10% of the vote and FDP does not clear the 5% threshold (both are likely), Angela Merkel will not survive the coalition building process or will be dramatically weakened in the process.
Wahl-O-Meter Update
Wahl-O-Meter shows support for AfD at 7.9% with FPD dropping to 4.5%. With the threshold for parliament participation at 5% it is FPD, not AfD that is on the bubble.
Political Party Explanation
Please see Understanding German Politics for an explanation of the German political parties and what they stand for.
Prediction
I am sticking with my April 23 prediction Merkel Loses Chancellorship in September as Support for AfD Soars
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Saturday, June 15, 2013
Tidal Shift in the Bond Market
Friday, June 14, 2013
by Andy Waldock of Commodity & Derivative Advisors
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The recent spike in Treasury yields could very well be signaling a change in trend direction. We rarely try to pick tops or bottoms in major trending markets. It simply doesn't pay. However, we're seeing lots of corroborating evidence that this may signal a shift in the global macroeconomic outlook. Therefore, this is one of the rare times when a pull back within the interest rate sector may not be a buying opportunity. In fact, if this is the beginning of the Great Unwinding we need to focus on all of the evidence to obtain a complete picture view, all the way from the trading screens to the man on the street.
The trading screens always provide the first clues of market direction. It's important to remember that prices and yields trade inversely to each other. Therefore, when the price of the security rises, the interest rate declines. The opposite is also true. This is why we can talk about all time high prices and record low yields in the same sentence. The 10-year Treasury Note is the global proxy for US interest rates.
The last leg of this rally began in late November of 2007. The employment situation was starting to deteriorate and interest rate adjustment was the primary tool the Federal Reserve used to pump life into a faltering economy - prior to the economic collapse. The Fed lowered rates by a quarter point in four out of the last five months of 2007. They lowered rates eight more times in 2008 and finally committed to a zero rate policy in February of 2010.
The combined inventive efforts at the Fed eventually drove the 10-year rate to an all time low just under 1.5% in the cash market and an all time low on the 10-year futures of 2.3%. This is where it starts to get interesting. The 10-year Note has been trading at a negative real return for over a year. This means the interest generated by the instrument's yield would not keep pace with inflation's erosion of principle. The recent sell off has pushed its nominal yield above 2% while inflation is expected to remain a hair under that mark. Thus, bringing our first, "normal" look at a yield curve in ages.
The high water mark set in early May was fueled in part by Japan's concerted depreciation of the Yen. The markets were well prepared for this. The US has provided massive stimulus over the last five years. Europe has added their share over the last three years through Greece, Spain and now, Cyprus. The logical next step in a globally competitive devaluation race was obviously a form of Quantitative Easing by Japan. Commercial traders here in the US stocked up on 10year Notes, accumulating their largest long position since February of 2008. Their expectation was that we would continue pushing the zero bound interest rate plan.
This may very well be one of the rare times when the commercial traders are just plain wrong. Historically, they've been very good at forecasting rate direction. This time the largest trading group may have been faked out as a whole. Two important points bring this home. First of all, their buying did fuel a rally to new highs...by a hair. Secondly, the weekly chart is beginning to show an obvious reversal bar. Will this turn into an, "Everybody out of the pool," moment? I doubt it. However, I do expect them to continue to offload recent purchases, which will build up resistance on any attempted rallies.
The other primary point to make is the effect of the rise in interest rates on the housing market and its effect on the anemic economic recovery 99% of us have participated in. The national average 30-year mortgage has climbed by nearly 25% over the last few weeks rising from 3.4% to 4.2% according to Bankrate.com. This will have a big impact on the housing market, which had just begun to clear some inventory. This will also affect mortgage refinancing just as the deadline for governmental forgiveness approaches. The result of the spike in interest rates has caused a decline in the broad S&P 500 of nearly 4%. Meanwhile, the homebuilders ETF (XHB) has declined by almost 10%. The homebuilders have been a primary driver of the broad market's rally since 2012 gaining nearly 100% in two years.
Higher interest rates are the last thing any of the major economies can afford. Half a decade's worth of rate cuts, Quantitative Easing and Operation Twist, etc. have created a coiled spring of leveraged money hunting for that last bit of yield. The major reversal bar in the 10-year futures coupled with a large, unprofitable, commercial trader's position could leave them left holding the hot potato. At its worst, this spike in rates steers us towards stagflation. An environment with rising inflation and no growth characterizes this. How far it spills over into the markets is unsure. Please call with any questions as this may well mark the inflexion point of what has been THE dominant trend over the last five years
Friday, June 14, 2013
by Andy Waldock of Commodity & Derivative Advisors
Bookmark and Share
The recent spike in Treasury yields could very well be signaling a change in trend direction. We rarely try to pick tops or bottoms in major trending markets. It simply doesn't pay. However, we're seeing lots of corroborating evidence that this may signal a shift in the global macroeconomic outlook. Therefore, this is one of the rare times when a pull back within the interest rate sector may not be a buying opportunity. In fact, if this is the beginning of the Great Unwinding we need to focus on all of the evidence to obtain a complete picture view, all the way from the trading screens to the man on the street.
The trading screens always provide the first clues of market direction. It's important to remember that prices and yields trade inversely to each other. Therefore, when the price of the security rises, the interest rate declines. The opposite is also true. This is why we can talk about all time high prices and record low yields in the same sentence. The 10-year Treasury Note is the global proxy for US interest rates.
The last leg of this rally began in late November of 2007. The employment situation was starting to deteriorate and interest rate adjustment was the primary tool the Federal Reserve used to pump life into a faltering economy - prior to the economic collapse. The Fed lowered rates by a quarter point in four out of the last five months of 2007. They lowered rates eight more times in 2008 and finally committed to a zero rate policy in February of 2010.
The combined inventive efforts at the Fed eventually drove the 10-year rate to an all time low just under 1.5% in the cash market and an all time low on the 10-year futures of 2.3%. This is where it starts to get interesting. The 10-year Note has been trading at a negative real return for over a year. This means the interest generated by the instrument's yield would not keep pace with inflation's erosion of principle. The recent sell off has pushed its nominal yield above 2% while inflation is expected to remain a hair under that mark. Thus, bringing our first, "normal" look at a yield curve in ages.
The high water mark set in early May was fueled in part by Japan's concerted depreciation of the Yen. The markets were well prepared for this. The US has provided massive stimulus over the last five years. Europe has added their share over the last three years through Greece, Spain and now, Cyprus. The logical next step in a globally competitive devaluation race was obviously a form of Quantitative Easing by Japan. Commercial traders here in the US stocked up on 10year Notes, accumulating their largest long position since February of 2008. Their expectation was that we would continue pushing the zero bound interest rate plan.
This may very well be one of the rare times when the commercial traders are just plain wrong. Historically, they've been very good at forecasting rate direction. This time the largest trading group may have been faked out as a whole. Two important points bring this home. First of all, their buying did fuel a rally to new highs...by a hair. Secondly, the weekly chart is beginning to show an obvious reversal bar. Will this turn into an, "Everybody out of the pool," moment? I doubt it. However, I do expect them to continue to offload recent purchases, which will build up resistance on any attempted rallies.
The other primary point to make is the effect of the rise in interest rates on the housing market and its effect on the anemic economic recovery 99% of us have participated in. The national average 30-year mortgage has climbed by nearly 25% over the last few weeks rising from 3.4% to 4.2% according to Bankrate.com. This will have a big impact on the housing market, which had just begun to clear some inventory. This will also affect mortgage refinancing just as the deadline for governmental forgiveness approaches. The result of the spike in interest rates has caused a decline in the broad S&P 500 of nearly 4%. Meanwhile, the homebuilders ETF (XHB) has declined by almost 10%. The homebuilders have been a primary driver of the broad market's rally since 2012 gaining nearly 100% in two years.
Higher interest rates are the last thing any of the major economies can afford. Half a decade's worth of rate cuts, Quantitative Easing and Operation Twist, etc. have created a coiled spring of leveraged money hunting for that last bit of yield. The major reversal bar in the 10-year futures coupled with a large, unprofitable, commercial trader's position could leave them left holding the hot potato. At its worst, this spike in rates steers us towards stagflation. An environment with rising inflation and no growth characterizes this. How far it spills over into the markets is unsure. Please call with any questions as this may well mark the inflexion point of what has been THE dominant trend over the last five years
More on UGAZ
From Commodity Trader
Natural Gas Bargain Hunting
Posted on 14 June 2013 by Matthew Bradbard
September natural gas futures are lower by 13.1% in the last 3 weeks and lower by 15.9% from their highs made on 5/1. As it stands futures are just under their 61.8% Fibonacci level (lower white jagged line) and attempting to trade back above the 8 day MA (orange line). Stochastics indicate an oversold market and though timing a reversal can be difficult aggressive traders can probe bullish trade in my opinion.
1.The idea is to buy low and sell high and after the correction in the past 60 days we are getting long near four month lows.
2.Natural gas appears to be the bastard child in the energy complex of late as traders are focusing on Crude oil and the products. Being a contrarian I want to buy when a commodity is not in the spotlight…identifying out of favor commodities is my MO.
3.Based on the most recent EIA natural gas storage report inventories are 2.4% below their 5-yr average…supply/demand.
4.The price consolidation in recent sessions has been on increased volume/buying interest which leads me to conclude that on confirmation of an interim low we could experience short covering just above current trade.
Natural Gas Bargain Hunting
Posted on 14 June 2013 by Matthew Bradbard
September natural gas futures are lower by 13.1% in the last 3 weeks and lower by 15.9% from their highs made on 5/1. As it stands futures are just under their 61.8% Fibonacci level (lower white jagged line) and attempting to trade back above the 8 day MA (orange line). Stochastics indicate an oversold market and though timing a reversal can be difficult aggressive traders can probe bullish trade in my opinion.
1.The idea is to buy low and sell high and after the correction in the past 60 days we are getting long near four month lows.
2.Natural gas appears to be the bastard child in the energy complex of late as traders are focusing on Crude oil and the products. Being a contrarian I want to buy when a commodity is not in the spotlight…identifying out of favor commodities is my MO.
3.Based on the most recent EIA natural gas storage report inventories are 2.4% below their 5-yr average…supply/demand.
4.The price consolidation in recent sessions has been on increased volume/buying interest which leads me to conclude that on confirmation of an interim low we could experience short covering just above current trade.
Friday, June 14, 2013
Where we stand--June 14, 2013
UGAZ is making a bottom.
| Symbol | Last | Original Price | Cost | Shares | Current Value | Gain (Loss) | |
| BWP | $ 29.69 | $ - | $0 | 0 | $ - | 0 | |
| CQQQ | $ 26.20 | $ - | $0 | 0 | $ - | 0 | |
| DRV | $ 15.61 | $ - | $0 | 0 | $ - | 0 | |
| DSLV | $ 56.60 | $ - | $0 | 0 | $ - | 0 | |
| DUST | $ 88.49 | $ - | 0 | ||||
| ECNS | $ 42.45 | $ 45.28 | $90,560 | 2000 | $ 84,900 | -5660 | |
| EPHE | $ 34.80 | $ - | $0 | 0 | $ - | 0 | |
| EPP | $ 45.17 | $ - | $0 | 0 | $ - | 0 | |
| EPV | $ 22.10 | $ 21.07 | $21,070 | 1000 | $ 22,100 | 1030 | |
| FAZ | $ 33.83 | $ - | |||||
| INDL | $ 14.55 | $ 17.11 | $85,550 | 5000 | $ 72,750 | -12800 | |
| NRGY | $ 23.92 | $ - | $0 | ||||
| NRP | $ 22.50 | $ - | $0 | 0 | $ - | 0 | |
| PGJ | $ 21.13 | $ - | $0 | 0 | $ - | 0 | |
| PIE | $ 18.59 | $ - | $0 | 0 | $ - | 0 | |
| RUSS | $ 21.45 | $ 22.70 | $11,350 | 500 | $ 10,725 | -625 | |
| TMV | $ 59.46 | $ - | $0 | 0 | $ - | 0 | |
| TRP | $ 45.94 | $ - | $0 | 0 | $ - | 0 | |
| TVIX | $ 3.21 | $ 3.36 | $252,146 | 75000 | $ 240,750 | -11396 | |
| TZA | $ 31.55 | $ 30.82 | $77,050 | 2500 | $ 78,875 | 1825 | |
| UGAZ | $ 21.89 | $ 28.10 | $285,961 | 10175 | $ 222,731 | -63230.25 | |
| YINN | $ 15.93 | $ 17.96 | $89,800 | 5000 | $ 79,650 | -10150 | |
| $913,487 | $ 812,481 | -101006.25 |
Why the bulls thought yesterday would stick is beyond me. Over this past week UGAZ has made 3 lows--each a little higher than the last. RSI lows have risen all month and OBV lows have been rising all week. I think we are getting there. Interest rates are around the 50 RSI and could go up some more-my bet--or could go down some. In general, interest rates are rising--a problem for the bulls. The Indian rupee has been rising this week and that should help our position in INDL. Asia is still in doldrums--Japan has everyone flummoxed. Nothing good in Europe--our EPV should well in coming days. Our RUSS has not worked out yet. TZA has small profit. Our breakeven for TVIX is 3.36, and when market takes a dive, that will soar.
I think we are set for some interesting moments in near future. Take care.
Best of luck.
Thursday, June 13, 2013
Bulls rally oversold market
| Symbol | Last | Original Price | Cost | Shares | Current Value | Gain (Loss) | |
| BWP | $ 29.33 | $ - | $0 | 0 | $ - | 0 | |
| CQQQ | $ 26.66 | $ - | $0 | 0 | $ - | 0 | |
| DRV | $ 15.81 | $ - | $0 | 0 | $ - | 0 | |
| DSLV | $ 58.78 | $ - | $0 | 0 | $ - | 0 | |
| DUST | $ 84.20 | $ - | 0 | ||||
| ECNS | $ 43.43 | $ 45.28 | $90,560 | 2000 | $ 86,860 | -3700 | |
| EPHE | $ 35.38 | $ - | $0 | 0 | $ - | 0 | |
| EPP | $ 45.39 | $ - | $0 | 0 | $ - | 0 | |
| EPV | $ 21.81 | $ 21.07 | $21,070 | 1000 | $ 21,810 | 740 | |
| FAZ | $ 32.90 | $ - | |||||
| INDL | $ 14.52 | $ 17.11 | $85,550 | 5000 | $ 72,600 | -12950 | |
| NRGY | $ 23.34 | $ - | $0 | ||||
| NRP | $ 22.44 | $ - | $0 | 0 | $ - | 0 | |
| PGJ | $ 21.29 | $ - | $0 | 0 | $ - | 0 | |
| PIE | $ 18.67 | $ - | $0 | 0 | $ - | 0 | |
| RUSS | $ 21.67 | $ 22.70 | $11,350 | 500 | $ 10,835 | -515 | |
| TMV | $ 59.22 | $ - | $0 | 0 | $ - | 0 | |
| TRP | $ 46.44 | $ - | $0 | 0 | $ - | 0 | |
| TVIX | $ 3.08 | $ 3.36 | $252,146 | 75000 | $ 231,000 | -21146 | |
| TZA | $ 30.95 | $ 30.82 | $77,050 | 2500 | $ 77,375 | 325 | |
| UGAZ | $ 23.30 | $ 28.10 | $285,961 | 10175 | $ 237,078 | -48883.5 | |
| YINN | $ 16.71 | $ 17.96 | $89,800 | 5000 | $ 83,550 | -6250 | |
| $913,487 | $ 821,108 | -92379.5 |
ISEE closed at 153--that's confidence that this rally will continue. Doesn't matter Japan is imploding; doesn't matter that Europe is tottering; doesn't matter that Ben has lost control of interest rates. Believe what you want. I'm looking for confirmation that we are in bear market. A DOW penetration of 14,844 and 1598 in S&P will do it for me. Of course, there will be more to prove--like a DOW penetration of 14,444 and 1536 in S&P. There's more work to do. Today we sold EWV at slight profit because the Nikkei was down 6% last night and it's 3x inverse was also down--ProShares you're not doing very well by your customers. I will never buy that product again. I also dropped ENB and BPL from ETFs we follow. I also, sold DUST today at a modest profit--not because I think gold miners are going up (though they did have a little rally after I sold) but because I wanted the money to buy more TVIX--we now own 70,000 shares. I used the EWV money to buy 500 shares of RUSS, which went lower. China and India are perking up, as well as natural gas. This is where we stand at the moment. I believe Asia will decouple from Japan and most emerging markets. I like SE Asia, Taiwan, Philippines, and Korea. I think US and Europe are cooked. As Loyola says, we see.
Best to all.
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