One Of The Signs Another Financial Collapse Is Coming – Dave Kranzler

TND Guest Contributor:  Dave Kranzler |

As everyone knows, the primary stock indices are being aggressively supported and pushed higher by the Fed using the liquidity with which it as flooded the banking system. However, most of the non-marquee indices have been selling off.  As an example, the SOX semiconductor index is down 10.5% since June 1st.  I’ll bet a lot of you are surprised by that fact, given that the tech-heavy NASDAQ hit an all-time high last week.

When I was a junk bond trader, one of the sectors I traded was semiconductors/electronics. Because semiconductors are used in many everyday-use consumer goods, including automobiles, semiconductor sales is considered to be bellwether economic barometer. Thus, if the SOX is tanking despite a torrid rally in the Dow, SPX and Nasdaq, it likely indicates that the economy is slowing down – significantly.

Another bellwether indicator is financials.  I noticed something quite interesting on Thursday, the day that the S&P 500 ramped up 19 points on meaningless to negative economic reports.  One of the sub-categories of financials I follow is what I term “specialty” financial stocks.  Most of the big bank and financial stocks last Thursday were up big with the SPX.  But look at this:

All six of those specialty financials were down – some down quite a bit.  MBI, AMBC and AGO are debt guarantee companies.  All three have heavy exposure to Puerto Rico but they also have big exposure to debt-based derivatives in general.   RDN is also a financial guarantee company that should have collapsed in 2008 but was saved by TARP and QE.  CACC and ALLY are auto-finance companies. CACC is the Countrywide Financial of the current credit bubble.  ALLY is the old GMAC, which went bust in 2008 and was taken over by the Government.  It will go bust again this time around – Chapter 22, if you will.

Because those stocks were weak all week last week, not just on Thursday, while the S&P 500 was going near-vertical toward a new record high and the NAZ hit an all-time high, those sub-sector financials are telling us the something is melting down behind the extremely thick layer of make-up being applied heavily to the Miss Piggy U.S. economy.

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About Dave Kranzler:

 I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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