Hit with BRICS (ow ow!)

I was looking at the BRICS (Brazil Russia India China South Africa) and thought the charts instructive…

First up is a 4 year weekly chart. It captures the “heyday” of the Pop, before the plunge. Then the rise out of it and the “go flat / down” after.

BRICS vs SPY 4 year weekly interval chart for 29 July 2011

BRICS vs SPY 4 year weekly interval chart for 29 July 2011

I’ve listed the Indian Rupee fund in the ticker list below, but not put it on the graph, as we’re limited to 10 tickers max and it is basically flat against the dollar over the 4 years (with a dip of 20% during the sell off and a 5% ‘gain’ in the last 6 months).

What do we see?

First up “they all go together when they go”. Currencies are driven by the selling pressures and move with their general markets. The markets are, by and large, driven together by the same events. We also see that the BRICS tended to spike together to great heights, have a very deep drop (more volatile than the SPY) and then have a fast recovery to a ‘flat phase’.

During that “flat” the SPY continued to rise. (RSX also has some rise then, on oil prices largely IMHO)

But all the lines are flat to down “lately”… There’s been “no joy” in BRICS land for a while now. So how about we “zoom in”?

FXI  - China
CYN  - China Yuan currency
SPY  - S&P 500 benchmark ETF
EWZ  - Brazil ETF
BZF  - Brazilian Real currency
RSX  - Russia ETF (heavy in oils)
XRU  - Russian Ruble currency
INP  - MSCI India Fund ETF
INR  - Indian Rupee (not graphed as net near zero
EZA  - South Africa ETF
SZR  - South African Rand currency

And, with the same list, the one year daily chart:

BRICS vs SPY 1 year daily interval chart for 29 July 2011

BRICS vs SPY 1 year daily interval chart for 29 July 2011

We’ve basically been ‘down to flat’ in just about everything from that peak in about November of last year. Since then, only SPY has really had any run (and it ran out of gas in Feb-April) while South Africa has “held up” (and lord only knows why… likely the gold and diamond mining – Oddly, their largest holding is “Vail Resorts” ticker MTN per Yahoo Finance…)

You can look through the indicators and they say about the same thing. Little trend, what there is, is down. Basically, you have nice volatility spikes that you can ‘range trade’ (buy the dips, sell the rips) in some of the tickers; but mostly it’s just “keep on staying out”…

So, if the SPY has ‘caught up’ with the BRICS on the 4 year chart, and everything has “gone flat”, and the economy is looking like a sputtering lawnmower about to choke on tall grass, what to do?

I think this goes a long way to explaining the recent bumps in bonds and some metals. “Duck and cover”. It also suggests that “momentum” stocks (individual issues) will be more important than any broad baskets. So I’ll be adding a “Mo’ Mo!” section to the WSW postings.

But, at least for now, it’s nice to know that we can ‘Pay no attention to those BRICS, they are not the ones you are looking for…”

Maybe someday they will be again, but for now, not so much. Most interesting is simply the rise of BZF, the Brazilian currency, as their stock market does not rise. I suspect someone is buying land in Brazil and / or commodities, using $US Dollars. Most likely China.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged , . Bookmark the permalink.

22 Responses to Hit with BRICS (ow ow!)

  1. Tim Clark says:

    Can’t wait for the mo mo!

  2. Adam Gallon says:

    China’s trying to deflate its construction bubble, without crashing its economy. They’ve been investing heavily on infrastructure, especially railways, with the hope that business will follow the lines. This isn’t necessarilly going to be the case.
    http://www.telegraph.co.uk/finance/comment/jeremy-warner/8669207/Chinas-economic-miracle-may-be-about-to-come-off-the-rails.html
    I’ve got a holiday booked in Kefalonia, in September, what’s the chances of the Greek economy sinking without trace before then?

  3. Pascvaks says:

    Until the ‘weld’ pops, it’s difficult to see which link in a chain is the weakest. But, when you’re looking at links, it’s often a good idea to step back and remember that the most important thing is the chain itself. I guess the chain analogy is a little off. It’s better to think in ropes and threads.

    OK! Whatever turns you on, use it. The rupture of anything under strain is violent and quick. Feels like we’re stomping around on an active volcano and Obama’s “Balanced” Solution is going to blow up in our faces sooner than later.

    (Always thought English Teachers who didn’t like Mixed Metaphores were heartless;-)

  4. My conclusion, from fifty-one years of nuclear and space research, is that the current economic collapse was engineered by world leaders afraid that they would die in a full scale nuclear exchange.

    A recently revised* history of events (1945-2011) that produced Climategate and the current economic crisis is outlined here:

    Click to access 20110722_Climategate_Roots.pdf

    http://dl.dropbox.com/u/10640850/20110722_Climategate_Roots.doc

    With kind regards,
    Oliver K. Manuel

    *Revised after receiving comments from members of the nuclear industry and a former CIA espionage agent, Kent Clizbe.

  5. E.M.Smith says:

    @Tim Clark:

    It will be heavily based on the Alpha process shown in the

    https://chiefio.wordpress.com/2011/07/20/alpha-bubbles-and-lists/

    posting. So you could look at it and see where I’m headed. Pick things off the list that are possessed of a nice chart (i.e. not too far off the most recent bottom and not showing signs of keeling over; and without a ‘failure to advance’) or those tickers that have a rising “bubble” on the bubble charts on the one month scale, but not too extended on the 1 year scale, then “dig in” to see who has a nice graph and stable “story”.

    @Adam Gallon:

    I think you can be pretty sure that September will be OK. It’s all of 5 weeks or so away. You can’t even file default papers that fast… it is a government after all ;-) But really, there are most likely 2 or 3 more “couple of month” bailouts to go before Germany gives up on them and stops the funding.

    Per China: Remember they have a long and deep Communist tradition of ignoring failures for very long times. Don’t expect any rapid admission of things not going just fine…. But I’d not be putting ‘new money’ into China for a while…

    @Pacvaks:

    English Teachers who didn’t like mixed metaphors are like mechanical robots with a mental obsession emotional problem ;-)

    Just remember that, like volcanoes and geology, demographic problems are very slow to unfold. We will be at this game for many more years to come. My best guess is about 10 to 20. We’ve got a LOT of 10 to 30 year maturity paper already sold, so it’s not “roosting” for a while. We’ve got a lot of ’50 to 60 somethings’ that have to move out of productive lives and onto the Government Dole of Social Security / Medicare et. al. and that will take time to manifest the worst of it. With some reasonable fixes, they could have moved that “issue” out by 10+ years (but they didn’t do those things… and went for the Obamacare “move the problem in sooner but suck in more money from kids for a few years so it doesn’t start to show as fast”. With that “capitation” of the young into forced labor / payments, the “blowup” is about 2020 (or maybe 2018). A rollback of Obamacare, dumping the Baby Bush Drugs Plan, and upping retirement age to 70 could kick the demographic can down the road to about 2040 and maybe even ‘fix’ it enough to not be an explosion, just a hard patch.

    They would still have to find a ‘fix’ for the government pensions mess (at all levels of government) as there is not enough funding to support it and there are not enough productive non-government workers for an unfunded “defined benefit” payout (so a conversion to defined contribution of some sort would be needed).

    There are other things that could be done too (like giving up on global military adventurism… ) and dumping the 50% of so of government agencies that are substantially just welfare (or worse, suppressive of private production).

    Unfortunately, there is zero evidence that ANY of that is likely to be done.

    Present path has the USA as “Greece Lite” in about 2016-2018 and “Substantially cooked” in 2020+. Faster if the Dimocrats and Republicants get there way. Later / slower if the more sane Democrats and Republican/TeaSpanked can get some fixes of something started.

    Personally, I’d go with the rope metaphor. But it’s a rope made up of many rotted and a couple of strong strands. Congress is actively sawing on some of the strands while adding more weight to the end of the rope. Some folks are trying to weave / wrap some new strands from anchor to weight. It’s a race condition between the two… And the Tea Party wants to shove 1/2 the weight into the sea and move on…

    I’ve watched a lot of congresses over the years, and seen a lot of political BS and graft / greed. Sadly, I think the present crop of Congress Critters is the LEAST capable I’ve ever seen. The others might have been crooks, but at least they knew to keep the “mark” alive while they bled him. These folks are so dumb they are going to shoot the hostage on camera to show they mean it when they demand a ransom…

    Partisanship, favoritism, graft, greed, corruption… those I can understand (and to a limited extent accept as part of the ‘cost of doing business’ in politics) but being so stupid as to shoot yourself and your hostage is just unforgivable…

    Oh well… they didn’t ask my opinion and would reject it even if they did. It does not match their preconceived notion of what they want to hear…

  6. E.M.Smith says:

    @Oliver K Manuel:

    There are odd “patterns” of interaction at the leadership level…

    Not enough to be definitive, but certainly not as the ‘top story’ would lead one to expect.

    FWIW, the present large rise in profits of companies and then the lack of an economic recovery has, IMHO, caused consternation among the ‘leadership’ as it is not to script. We were, IMHO, “supposed” to accept that everything was better now and get back to the grind stone… with higher wealth concentration in the hands of the few.

    That folks are not ‘buying it’ and not embracing the narrative is, I think, “of script”; so we can watch for some ‘scramble’ and the information leakage that comes with that…

  7. George says:

    I was reading this article this morning:

    http://www.cnbc.com/id/44002192

    And when I came to this part:

    The problem facing the nation has been clear for some time. The Congressional Budget Office estimates that the federal debt is likely to exceed 100 percent of the nation’s annual economic output by 2021, largely because of the rising cost of Medicare, Medicaid and Social Security.

    It dawned on me what the next “step” in all of this is. The government is simply going to have to start killing off old people. Be it though “death panels” or policies that deny care, they are going to eventually get to a point where they simply are left with no other choice but to start killing off old people. They will probably start with those who are indigent and have no family. Nobody will really notice and they will likely be in government care of some sort anyway. They would be the “low hanging fruit”.

    Maybe I should write a novel about some political party that makes grand promises of a lavish retirement including the building of fabulous “retirement communities”. The children have no need to care about their elders and eventually lose contact with them. Government absorbs them in to these retirement “centers” and quietly disposes of them. Have a few sort of Potemkin centers that you use as a showcase to keep people interested in the program, but the rest of little more than medical research and subject disposal facilities.

  8. Jason Calley says:

    @ George “…the rising cost of Medicare, Medicaid and Social Security. ”

    Looking for one moment at the medical parts of that statement- why are there rising costs? Well, yeah, there are more people who are being brought into the programs, but even private care and privately purchased medicine is becoming more and more expensive. It is something of a truism that one can go overseas as a “medical tourist” and get really good care for a fraction of what it costs here in the US. Same with drugs purchased overseas. Why is this? The high tech parts of our consumer lifestyle, that is, the phones, computers, game systems, etc., have gotten cheaper and cheaper every year for decades. Almost twenty years ago I paid $350 for a 32 MB hard drive. Today a 1TB drive can be bought with $80 devalued dollars. We know why. But isn’t modern medicine just another of the very high tech parts of our consumption. It is not like our medical care has gotten more expensive because now we spend three hours chatting with our physician.

    Thirty five years ago, I paid just over two weeks (of a very average) wages for the costs incurred during the in hospital birth of my son. That included Doctor, various specialists, nurses, drugs, room and overnight stay, etc. Today, even adjusting for inflation, the costs are much greater. Why is that? Why has medicine become a sort of high tech consumer good that has grown very rapidly in cost while other high tech products have dropped like a stone?

  9. George says:

    I noticed today that in Lithuania everyone pays exactly the same tax rate:

    15% to the general fund.
    6% for medical care.
    3% for your social security (employers pay 27% you pay 3% for a total of 30%)

    Every person who is employed pays exactly the same pay rate. None of this nonsense of “progressive” tax brackets that results in enabling class welfare where you can raise taxes on 50% of the people will vote for it. Everyone has exactly the same amount of “skin” in the game and a 1% tax hike is 1% for everyone.

  10. George says:

    OOps that didn’t format properly due to my use of angle brackets. I meant to say:

    None of this nonsense of “progressive” tax brackets that results in enabling class welfare where you can raise taxes on less than 50% of the people and more than 50% of the people will vote for it.

    It didn’t like my “less than” and “greater than” symbols.

  11. David says:

    Apparently the budget control act not only raised the debt limit, it fundementally changed how it can be raised again, giving this power to the president. QE III is now in the books on executive order of the President to the toon of 1.5 trillion, subject only to the DISapproval of congress, and that disapproval is subject to presedential veto.

    http://www.americanthinker.com/2011/08/the_budget_control_act_of_2011_violates_constitutional_order.html

  12. George says:

    Well, it is true that under this agreement the President can raise the debt ceiling ONE time pending Congressional disapproval, what it does is makes sure the issue will be in the news again, veto or not, if it should be reached again before the next election and it also limits the amount by which the President can raise it. So it is basically a 3 trillion deb ceiling increase that is split across two increases of 1.5 trillion.

  13. boballab says:

    George
    I was reading this article this morning:

    http://www.cnbc.com/id/44002192

    And when I came to this part:

    The problem facing the nation has been clear for some time. The Congressional Budget Office estimates that the federal debt is likely to exceed 100 percent of the nation’s annual economic output by 2021, largely because of the rising cost of Medicare, Medicaid and Social Security.

    George it didn’t take long:

    US borrowing tops 100% of GDP: Treasury
    AFP – Wed, Aug 3, 2011

    US debt shot up $238 billion to reach 100 percent of gross domestic project after the government’s debt ceiling was lifted, Treasury figures showed Wednesday.

    http://news.yahoo.com/us-aaa-rating-still-under-threat-204040123.html

  14. David says:

    George
    “Well, it is true that under this agreement the President can raise the debt ceiling ONE time pending Congressional disapproval, what it does is makes sure the issue will be in the news again, veto or not, if it should be reached again before the next election and it also limits the amount by which the President can raise it.”

    George yes, but did we not KNOW this time, without this new executive office authority? Previous to this how would we NOT know, as only congress had this authority? This legislation specifically gives the president the right to raise the debt ceiling again, without congressional authority, against the letter and intent of the constituiton, congress has surrendered authority again. BTW, have you read the the budget control act section in the article, you are correct that the POTUS has until December of this year to decide this. He needs this money for many reasons, the economic bandage of OEIII, re-election, political graft, social/facism, dollars to doughnuts, he will get there.

  15. George says:

    Again, Congress has basically already granted a 3 trillion debt increase. They gave the President the authority to authorize the second half of it. It wasn’t a secret that we learned only after the bill passed, it was widely reported before the vote. The entire increase has already been authorized by Congress so there is no abdication of Congressional responsibility as far as authorizing the increase.

    The sickening part is that this is even happening. If you look at the deficit in Bush’s last year and then look at the deficits we are running now, the numbers are simply staggering. We need to absolutely chop off about 1 trillion in spending. What they are basically doing is continuing the “one time” stimulus spending forever.

  16. David says:

    George, the meat of the argument for abdication of Congressional responsibility is here…

    “However, a different approach was used when BCA 2011 was signed into law on August 2, 2011. Title III of the Act reads the “Debt Ceiling Disapproval Process.” Under this title Congress has transferred to the President the power to “determine” that the debt ceiling is too low, and that further borrowing is required to meet existing commitments,” subject only to congressional “disapproval.” For the first time in American history the power to borrow money on the credit of the United States has been disconnected from the power to raise revenue. What St. George Tucker and Joseph Story stated were inseparable powers have now by statute been separated. Under the new process established by this bill, if the President determines, no later than December 31, 2011, that the nation’s debt is within $100 billion of the existing debt limit and that further borrowing is required to meet existing commitments, the debt limit automatically increases. The President need only to certify to Congress that he has made the required determination. Once the President acts, the Secretary of the Treasury may borrow $900 billion “subject to the enactment of a joint resolution of disapproval enacted” by Congress.

    But this is not all. Title III also provides that if Congress fails to disapprove the debt ceiling increase in the amount of $900 billion, the President may again certify to Congress that he has determined that the debt subject to the new ceiling is within $100 billion and that further borrowing is required to meet existing commitments. So the Secretary of Treasury is authorized to borrow another $1.2 trillion. Indeed, the Secretary may borrow even more — up to $1.5 trillion if a proposed balanced budget amendment has been submitted to the states for ratification. As was true of the first round of ceiling raising and borrowing, the President and Secretary of the Treasury are constrained only by the possibility of a congressional resolution of disapproval which, itself, is subject to veto by the President.

    I can state it more simply, Congress can disapprove of the additional money and the president can veto that disappoval. This is indeed new to me, of course, the first lesson to learn about the law is that there is no thing such as a clear law. (-;

  17. George says:

    Right, because Congress has already approved the ENTIRE increase but reserved the right to disapprove a portion of it later.

  18. George says:

    Knowing full well the President can veto it, by the way. The only point is reserving the right to put it in the media spotlight again before the next election and closer to the election.

  19. David says:

    Yes, so before this was passed the “decision” to raise the debt ceiling belonged to Congress alone, which if refused, executive authority could do nothing about; now, IF the president decides there is a need, there is nothing congress can do. This is unprecedented. Before this, congress already had the ability and responsability to place this in the public spotlight. They are, in my view, playing politics with the constitution, albeit one time, it does counter Article I, Section 7. by giving the president the authority to decide when this is needed.

    “Instead of constitutional order, in which Congress presents a law authorizing the borrowing of money to the President to sign or veto, the President presents to the Congress his determination that more money is to be borrowed, subject to the acquiescence or veto of Congress.

    Second, the joint select committee on deficit reduction provision undermines the constitutionally established bicameral legislative process…” This also can be considerd an abdication of Congressional responsibility.

    Legally these split hairs matter.I will gave a small example. The access to my property has been, since the house was built, an easment granted through about 100′ of my neighbors property. This has always been the sole and exclusive acccess to my property, and an exisiting fence runs along this road, separating the road from my neighbor. The original owner of my neigbors property was foreclosed on. (BTW, he admits to signing a quitclaim deed, but apparently it was never filed by the former owner of my property) The new neighbor has now demanded that I remove the fence, as he wishes to place a different style one there (perhaps) and stated that it is on his land. “it must come down”. The fence is a barrier that enforces the perscriptive easement nature of access to my property, thus my removing the fence, even one time for a day, weakens my claim to a persriptive easement.

    Details matter. If they, congress, had followed past presidence they would have had the guts to raise the limit 3 trillion, since they did so anyway. Instead they passed legilation where that 3 trillion can be spent, even with their disaproval, just so they can claim “I tried to be fiscally responsabile, but the president vetoed my vote.”

    The 3 trillion is a curious amount. The projected dficit is seven trillion. The credit agencies demanded 4 trillion in savings off of this, thus mathmaticaly Obama can now spend to his shiny socialist heart content until his term is up, theoretically leaving all 4 trillion in cuts for the next poor bastard elected. Obama now has 100 percent of his budget, he may have to wiggle around certain “cuts” via having a new agency do what the “cut” agency was going to do, but snakes are good at wiggiling.

  20. E.M.Smith says:

    @George & David:

    A very good analysis and an excellent example of how “Dig Here!” ought to be done. Bravo!

    Shine that light and watch the roaches run… (notice, too, that the stock market has started to have some similar worries…)

  21. David says:

    Thanks E.M., and I think the market also heard the “first citizen”, when he talked of raising taxes right after the vote.

    “This compromise requires that both parties work together on a larger plan to cut the deficit, which is important for the long-term health of our economy,” he said. “And since you can’t close the deficit with just spending cuts, we will need a balanced approach, where everything is on the table.”

    “Everyone will have to chip in,” Mr. Obama added. “That’s only fair. That’s the principal I will be fighting for during the next phase of this process.”

    So having passed the ability for zero cuts and a three trillion raise in the ceiling, the POTUS talks of tax raises!!

  22. Jason Calley says:

    @ George and David

    Your dual explanations of the questions about Congressional authority to expend or borrow money is a very close replay of the arguments made during the recent Bush administration over whether Congress could legally give the President authority to go to war at his discretion.

    “No! Only Congress has the authority to declare war!”

    “Yes! Congress already authorized a state of war if the President thinks we ought to!”

    Yes, split hairs matter. In my opinion, one of the reasons for having a written constitution in the first place is to have a clear assignment of powers so that responsibility can also be plainly assigned. The current debt agreement muddies things rather than clarifies them.

    This muddying is not a new development, and has been used many times in the past to allow diversion of blame. Consider the Federal Reserve. All stock in the corporation is owned by private entities; the Fed is obviously private. And yet, most of the profits go to the government and the government appoints and approves the Fed chairman. Obviously it is a governmental agency. Such arguments can go back and forth, but never be resolved — which is a design feature, NOT a bug! Similar things with Fannie and Freddie, etc.

    If we were still an actual Constitutional Republic (instead of the current kleptocracy) such issues would matter more, but that part of our national history is past.

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