This week saw things take a turn for the worse for the faltering Periphery Bubble. On the back of crude’s $8.03 collapse (to five-year lows), Venezuela CDS surged another 1,402 bps to 4,151 bps. Ukrainian bond yields surged 517 bps this week to 28.63%. Russian ruble yields jumped another 95 bps to 12.82%. On the currency front, the Russian ruble was slammed for another 9.25% (down 43.6% y-t-d). The Colombian peso fell 3.7%, the South African rand 2.1%, Indonesia rupiah 1.4%, Chilean peso 1.1% and Indian rupee declined 0.8%. The Chinese renminbi declined a not insignificant 0.6% against the dollar this week.
Importantly, the Periphery’s core has fallen under major duress. The Mexican peso was hit for another 2.7% (down 11.7%) this week, while the Brazilian real was down 2.5% (down 11%) and the Turkish lira 1.7% (down 6.5%). Brazilian CDS (Credit default swap) surged 48 bps to a one-year high 212 bps. Mexican CDS jumped 22 bps to a one-year high 112 bps. Brazilian stocks sank 7.7%. Turkey CDS rose 36 bps to 185 (high since October). Indonesian rupiah bond yields jumped 34 bps to 8.11%.
A good report that departs from some of the nuts and bolts (so much so that I forgot to include the usual currency segment, which we have frankly had nailed since the commodity currencies broke down a year ago and the great USD rally was just a twinkle in Uncle Buck’s eye ), managing what was an expected early December drop in markets with an eye out toward Tax Loss, Santa and January Effect seasonals.
But to me the most important aspects of #321 are its clear views about why nothing about this macro environment is healthy, how the market is vulnerable and how 6 years later we are simply closing out a massively significant market event, with the majority at the opposite end of the emotional spectrum to Q4, 2008.
On that note, at the prodding of a subscriber, I’ve excerpted a segment from NFTRH 7 (Nov. 8, 2008) on Deflation and Inflation. To me it shows how little things have changed in the ensuing 6 years. Amazing, really. I’ll probably post it here later, to go with Friday’s post about a potential ‘inflation trade’ bounce, possibly in early 2015.
The two big financial news items in December have been the multiple Hindenburg Omen signals and the crash in crude oil prices. I recently went on CNBC to talk about the former. Its relationship to the latter is inescapable.
A Hindenburg Omen occurs when the number New Highs and New Lows on the NYSE both exceed a specified percentage of total issues. See this article for more details. There are other requirements, such as that the NYSE Comp be in an uptrend, and the McClellan Oscillator needs to be negative. Those other criteria are important, because there is no sense getting an omen when you are already in a downtrend, or when the market is too strong to be able to go down. This month we have seen the New Lows list expanding, thanks to the poor performance of multiple issues with the words “resources”, “energy”, or “drilling” in the companies’ names.
So does it really count if the New Lows list is populated mostly by members of a single sector?
Don’t Get Ruined by These 10 Popular Investment Myths (Part X)
Interest rates, oil prices, earnings, GDP, wars, peace, terrorism, inflation, monetary policy, etc. — NONE have a reliable effect on the stock market
You may remember that after the 2008-2009 crash, many called into question traditional economic models. Why did they fail?
And more importantly, will they warn us of a new approaching doomsday, should there be one?
This series gives you a well-researched answer. Here is the conclusion of this 10-part series.
Myth #10: “Central banks and government policies control the markets.”
By Robert Prechter (excerpted from the monthly Elliott Wave Theorist; published since 1979)
Virtually everyone believes this statement; certainly most economists do. Keynesians and monetarists believe that authorities can control the money supply and interest rates, and most neo-Austrians believe that the Fed is all-powerful when it comes to inflating: Whatever inflation rate it wants, it simply manufactures.
Serendipity often plays a role when I am considering a blog post. In this case, I wasn’t even planning a post but was updating old spreadsheets for current data to see how things have developed. In the past, I have documented how NYSE Composite volume has been falling fairly steadily since at least 2006. It is difficult to tell whether this is important or not, since some of this is due to the fact that more trading occurs off of the NYSE these days. Still, there was a significant drop-off in 2010 and 2011 and 2012 which seemed more than coincidental (2012 total volume was about half of the volume traded in 2008, in terms of shares, and probably lower than that in terms of volume).