Archive for June, 2010

The Swiss Franc To The Australian Dollar Is The New Hot Carry Trade As Zurich Lures Reinsuers

June 30, 2010

The Swiss Franc, FXF, to Australian Dollar, FXA, carry trade, is  the new hot currency trade, since Monday, June 28, 2010, as Carolyn Bandel of Bloomberg reports Zurich Lures Reinsurers Betting Solvency II Rules Will Drive Europe Demand.

Catlin, owner of the largest insurance unit at Lloyd’s of London, plans to form a wholly owned unit in Switzerland, the firm said yesterday. The number of reinsurers in Zurich has doubled to 31 since 2006, before the European Commission adopted the Solvency II proposal, data from New Reinsurance Co. show. The new directive is designed to align insurers’ risks with the capital they hold to ensure clients’ claims are covered.

“The thinking appears to be that it pays to be on the ground as European primaries are looking for new reinsurance carriers driven by Solvency II,” said Hamish Chalmers, a London-based analyst with Macquarie Group Ltd.

The planned regulation, which is due to come into effect by 2013, is likely to force insurers to raise the amount of capital they hold against liabilities. Some forms of reinsurance will be accepted as a potential alternative source of capital. Reinsurers also say they are choosing Zurich over other European locations in part because Switzerland has attractive tax rates. Catlin’s new unit will allow the reinsurer to benefit from “opportunities created as the result of the forthcoming Solvency II regulatory regime,” it said in a statement yesterday. The holding company will remain in Bermuda.

Hat tip to Elaine Meinel Supkis of Culture Of Life News for the Zurich report snips and highlighting.

The Yahoo Finance chart of the Swiss Franc, FXF, to Australian Dollar, FXA shows a 2.1% gain for the Swiss Franc and a 3.1% loss for the Australian Dollar over the last five days. The euro yen carry trade has been usurped in importance; the currency traders are effecting yet another global currency bloodless coup de etat. Click on image to enlarge

The chart of FXF to FXA broke out Tuesday June 29, 2010. Click on chart to enlarge.

Symbols used in this report FXF, FXA

Commodity Slump Means Worst Quarter in Year on Growth Outlook, Bloomberg Reports

June 30, 2010

I … Intorduction: Commodities are heading for their worst quarter in more than a year on investors’ concern on worldwide slower growth and bank tightening in China.

II …  Maria Kolesnikova and Anna Stablum of Bloomberg report that the world’s largest economy will slow in the next two quarters, according to as many as 66 economists surveyed by Bloomberg. That will also happen in China, the biggest user of everything from coal to copper, the surveys show.

“If this slowing materializes, then clearly industrial commodities are going to be the least favored of the bunch,” said Sean Corrigan, who helps oversee about $6.5 billion at Diapason Commodities Management SA in Lausanne, Switzerland. “If the economy is struggling, gold is going to be the best- performing commodity.”

Gold’s 11 percent advance made it the third-best performer in the S&P GSCI Index in the quarter, behind a 20 percent jump for arabica coffee and 17 percent appreciation in natural gas. Investors accumulated a record amount of gold in exchange-traded funds backed by the metal, something that also happened in silver, the fourth-best gainer. The metal rose 6.1 percent, doubling as a store of value for those concerned about the economy and an industrial material for those bullish on growth.

Zinc’s 25 percent plunge was the worst quarter since the final three months of 2008. Nickel fell 22 percent, lead 19 percent, copper 17 percent and aluminum 15 percent. Barclays Capital is forecasting even lower prices by the fourth quarter. Copper will average $6,000 a metric ton in the period, 7.7 percent lower than now and aluminum $1,850, for a drop of 6.1 percent, according to a June 25 report.

U.S. sales of new homes collapsed a record 33 percent last month, Commerce Department data released on June 23 showed. Builders use about 400 pounds (181 kilograms) of copper in the average home for wiring and pipes, according to the Copper Development Association. One in every five tons of aluminum is used in building.

The slump in commodities was still better than the 13 percent decline in the MSCI World Index of equities in 24 developed nations. Treasuries returned 4.7 percent, according to an index from Bank of America Merrill Lynch.

Oil retreated 9.7 percent since April, the first quarterly decline since the last three months of 2008. The U.S. is the world’s biggest energy consumer, ahead of China. U.S. crude stockpiles tracked by the Department of Energy rose almost 12 percent this year.

The International Energy Agency, an adviser to consuming nations, forecasts that global oil demand will rebound 2 percent this year after a two-year collapse that was the steepest since the 1980s. Global oil usage will rise to a record 86.44 million barrels a day in 2010, according to the Paris-based agency.

While copper inventories monitored by the London Metal Exchange fell 12 percent since the end of March, signaling accelerating demand, prices dropped. Supply of the metal, the most traded by value on the LME, fell short of demand in March for the first time since September, the Lisbon-based International Copper Study Group said June 22. Industrial production in China, the world’s biggest copper consumer, jumped 16.5 percent in May.

III … The chart of RJA, DBB, and DNH shows that the currency traders in selling the global currencies against the US Dollar on April 26, 2010 initiated a sell off of base metals, DBB, and Asian Shares, DNH, and European Shares, FEZ and the Russell 2000 Shares, IWM.

With $1 Trillion In Loans, The ECB Is The Biggest Guarantor Of European Banks

June 30, 2010

Tyler Durden in June 30, 2010 ZeorHedge article With $1 Trillion In Loans, The ECB Is The Biggest Guarantor Of European Banks writes: Today’s lower than expected interest in the 3-month LTRO operation was supposed to indicate a sign of stability for European banks. Nothing could be further from the truth. In an article which recaps a variety of data points presented here previously, the FT summarizes that European banks continue to exist solely due to a record and unprecedented $1 trillion in emergency loans issued to Europe’s commercial banks.

EU Commission Proposes A Wide Range Of Budgetary And Monetary Sanctions To Strengthen The EU’s Fiscal Framework

June 30, 2010 provides the RTT News June 30, 2010 article EU Unveils Measures For Stronger Economic Governance In Europe, which reports the European Commission on Wednesday, June 30, 2010, proposed a wider range of sanctions and incentives to strengthen the credibility of EU’s fiscal framework.

It suggested temporary imposing of an interest-bearing deposit to countries making insufficient progress with budgetary consolidation. The proposals made by the EU’s corrective arm are intended to heighten budgetary discipline.

In case of non-compliance with the rules, EU’s corrective arm has foreseen two steps. First, the detection of an excessive deficit should result in the suspension or possibly redirection of commitments related to multiannual programmes. Second, it would imply the cancellation of the budgetary commitments and the definitive loss of payments for the country concerned.

Under the Stability and Growth Pact, all European Union members are required to keep their budget deficits below 3% of gross domestic product and government debt should not exceed 60% of GDP. Increased spending during the global financial crisis has widened deficit and debt levels of a majority of countries in the union.

The Commission said end-beneficiaries of EU funds, for example farmers, would not be affected by the sanctions. Member States would have to continue to pay the farm subsidies, without being reimbursed by the EU budget, the Commission said.

Bear Market ETFs Rise As Stock Market Falls

June 30, 2010

The primary ETF that I have been recommending in my blog, to institutional investors, TZA, rose 3% as the Russell 2000, IWM, fell 1%. (I’ve been recommending investment in gold coins to individual investors).

Today biotechnology shares were among the loss leaders. The chart of XBI, PBE, SMH, QQQQ, shows the decline of biotechnology stocks since April 26, 2010. Over the last year PBE has been an excellent performer; but now like its biotechnology peer, XBI, investors have taken flight from these once “crown jewels of investing” and “holders of scientific promise”.

Today’s fallers include … XBI -1.9% … PBE -1.0 … SHM -1.7 … QQQQ -1.5 … IYM -1.4 … SPY -0.9 … DIA -1.0 … IWM -1.2 … KBE -1.7 … RWW -1.0 …  EUFN -1.0

The 200% inverse of the NASDAQ Biotechnology stocks, BIS, has performed well with other bear market ETFs since April 26, 2010, when the currency traders sold world currencies against the yen, FXY, as concerns arose over the European Sovereign Debt Crisis. 

Yahoo Finance chart of SJH, SMN, SIJ, SSG, JPX, EPV, BIS and

MSN Finance Chart of  SJH, SMN, SIJ, SSG, JPX, EPV, BIS and

Google Finance Chart of SJH, SMN, SIJ, SSG, JPX, EPV, BIS.

ProShares 200% inverse leaders include:

SJH,  200% inverse of the Russell 2000 on financial market deterioration.

SMN, 200% inverse of the Basic Materials on carry trade disinvestment.  

SIJ, 200% inverse of the Industrials on overall global debt deflation.

Symbols used in this report: TZA, SJH, SMN, SIJ, BIS, XBI, PBE

A Survey Of The Commodity And Stock Markets After Yesterday’s Bearish Downturn

June 30, 2010

Today’s Yahoo Finance chart of GLD, SLV,USO, JJC, UNG, PALL, shows that gold and silver prove to be resilient investments, and actually introduces them as global currencies, with investment demand stemming from the wave of Debt Deflation that has struck the stock and commodities market.

Global Debt Deflation commenced on April 26, 2010 when the value shares failed to outperform the growth shares. It was at this time that the currency traders heavily sold the EUR/JPY, in response to the European Sovereign Debt Crisis, causing stocks to fall globally.

Debt deflation is consequence of credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”

Well getting back to today and the coverage of the commodities: USO, JJC, UNG, PALL.  These are really pretty depressed investments; Palladium is even falling today.

Over the last week,  the currency traders sold the Euro against the Yen: the 1.6% fall in the EUR/JPY set off a wave of disinvestment with the Russell 2000, IWM, falling more than the S&P, SPY, with the reason being the small caps stocks are more dependent upon a well-functioning banking and lending infrastructure that has now been forever damaged from 1) a rising yield curve, 2) an expanding bond interest differential between corporate rates and government rates and 3) from contagion spreading from the European Sovereign Debt crisis.

The currency traders have also gone heavily short the Australian Dollar, FXA, relative to the Yen, FXY, this has caused roughly a ten percent fall in the financially laden and basic material laden Australian ETF, EWA.

Lieberman: No Palestinian State in 2012. The New York Times Reports

June 30, 2010

I … Lieberman: No Palestinian state in 2012. The New York Times reports:

In remarks that could further strain peace efforts, Israel’s foreign minister said Tuesday that there was no chance that a Palestinian state would be established in the next two years. “I’m an optimistic person, but there is absolutely no chance of reaching a Palestinian state by 2012,” said the minister, Avigdor Lieberman. “One can dream and imagine, but we are far from reaching understandings and an agreement.” (…)

Russia, the United States, the European Union and the United Nations, in a grouping called the quartet, have called for a peace accord between Israel and the Palestinians by 2012. (…)

The Palestinian president, Mahmoud Abbas, responded indirectly to Mr. Lieberman from the West Bank town of Ramallah, saying that he believed in the peace process and that he hoped that a deal would emerge as soon as possible. “We will make every effort to reach a solution, because time is not on anyone’s side,” he said during a news conference with Mr. Lavrov. “Achieving peace is in the best interest of Israel, the Palestinians and the whole world.”

Salam Fayyad, the Palestinian prime minister, has repeatedly said his goal is to set up the institutional foundations of a state by the end of next year.

II … The US is calling for a peace accord between Israel and the Palestinians by 2012. The Palestinians want a nation state. The sticking point to a Israel-Palestinian peace accord and recognition of a Palestinian statehood is primarily the location of the Palestinian capital.  The Palestinians have on numerous times reported that a Palestinian State would have its Capital in Jerusalem. And the leaders of Israel have repeatedly stated that Jerusalem is the capital of Israel; and that it is currently and will forever be an undivided city; and that Israel being sovereign will never ever permit a Palestinian capital to be established in Israel. For Israel the case is closed, and is not now, nor will it ever be subject to any negotiation.     

Sometime very soon, definitely before 2012,  Israel, and/or the United States, will initiate a military strike against Iran to end its nuclear ambitions. The situation will escalate and the nations of Syria, Hezbollah in Jordan, Turkey will counter-attack. This will lead to all out war against these nations by Israel. Russia will come into the area to preserve its strategic interests in oil pipelines. And NATO forces will flow into the region from Germany, with missile defenses in Romania and Bulgaria being activated. All of this was foretold in Bible prophecy by the prophet Ezekiel writing in Ezekiel 38.      

III … Reformed Christianity, of which I am an adherent is not particularly, supportive of Zionism; yet it has a doctrine of bible prophecy which foretells of a world war between Israel, Iran, Syria, Turkey and other arab nations that draws in Russia, Germany, Bulgaria, Romania, as well as Turkey. One can read of this in  Jack Kelley’s article The Battle Of Ezekiel 38 on the Grace Through Faith Website.

And bible prophecy of Daniel 9:27 foretells that the world’s Sovereign will one day, after this terrific war,  establish a peace covenant between Israel and Arab nations.  

Yet the Sovereign will not fully honor that covenant as he will break it after 36 months. “He shall confirm the covenant with many for one week”; here each day represents one year. This important phrase indicates that the event that starts the 70th week, the seven-year tribulation, is the signing of a seven-year covenant between the Sovereign and Israel. The signing of the covenant begins the period called the Tribulation. At the halfway point of the Tribulation, which is three and a half years, the Sovereign will break this covenant with Israel with an event called “The Abomination of Desolation.” It is at this time that God provides a physical place of safety, that is a refuge, for a select group of saints.This also signals there is only three and a half more years remaining before Christ returns to earth to set up His Earthly Kingdom, which will last for a 1,000 years.

It is a given that the covenant between the Sovereign and Israel will permit the Jews to rebuild their temple, where they will once again practice their sacrifices.

Petraeus Locks Obama Into Afghan War, Leslie Gelb Says

June 30, 2010

Petraeus “locks Obama into Afghan war”, says Leslie Gelb:

With his four stars and battle ribbons speaking for themselves and his reputation soaring, Gen. David Petraeus Tuesday told the Senate Armed Service Committee just what President Obama wanted its members to hear: (1) fighting the Taliban and al  Qaeda in Afghanistan remains essential to U.S. security; (2) the president’s counterinsurgency strategy and U.S. troop reductions projected to begin on July 2011 were fine; and (3) this general and this president are in harmony unlike the departing U.S./NATO commander Gen. Stanley McChrystal.

But make no mistake, the thrust of the general’s remarks in these confirmation hearings was to further lock Mr. Obama into the Afghan war and to protect his right flank against Republicans and conservatives who have begun charging that the president is about to cut and run from the war. He offered very little to Democrats and liberals who have stepped up their demands for an exit strategy.

Date For Approval Of EFSF Monetary Authority Passes As Some Eurozone Nations Have Not Yet Signed The Required Framework Agreement

June 30, 2010 relates the Jan Strupczewski Reuters report dated June 30, 2010 All Euro Zone Countries Must Sign Stability Deal -Rehn: It is essential that Slovakia, along with all other euro zone countries, signs the agreement that would allow the European Financial Stability Facility to become operational, Economic and Monetary Affairs Commissioner Olli Rehn said.

Slovakia has not yet signed the framework agreement that spells out how the EFSF is supposed to operate, holding up the process of making the emergency loan facility for euro zone countries operational.

The EFSF, which would be able to issue up to 440 billion euros worth of euro zone-guaranteed bonds to raise funds for a euro zone country in trouble, was to become active on July 1.

Chart of FEZ, FXI, IWM, EWJ, DNH, EWP shows Spain leading the way down in a deflationary world-wide economic collapse — debt deflation is destroying fiat asset values; while creating an investment demand for gold, GLD.

Tax Rate Policies In Europe Have Benefited Sweden And Devastated Developing Euorpe Countries

June 30, 2010

I … According to Eurostat’s new tax report, spreads between tax rates in the EU’s 27 member nations are remarkably wide. The difference between the highest top personal income tax rate, Sweden, at 56.4%, and Bulgaria, at 10%, is a whopping 46.4 percentage points. (Comment: higher taxes have led to a higher standard in Sweden than in Bulgaria)

Spreads are also wide for other forms of taxation. The average tax on capital is 10.7% in Estonia and 45.9% in the U.K. Tax on consumption was lowest in Spain, 14.1%, and highest in Luxembourg, 27.1%. (Comment: the average tax on capital is low in Estonia because it is the intransigent example of Milton Friedman inspired neoliberalism; and the fact that it is high in the UK had helped the former socialist regime provide social benefits to a vast number of citizens and immigrants. I have more to say on Estonia at the end of this article).

The tax situation is also volatile over the years. Bulgaria’s top personal income rate, for example, has fallen all the way from 40% in 2000. Romania’s has fallen to 16% from 40% and Slovakia’s to 19% from 42%. The biggest increases: The U.K., to 50% from 40%, and Sweden, to 56.4% from 51.5%. (The fact that Romania’s personal tax rate has fallen, has literally destroyed the country, as the country’s health service  is on the bank of insolvency; the fact that personal taxes have remained high in Sweden has assured a higher standard of living for all than in Romania).

Thanks to the tax-cutting Eastern Europeans, the overall tax rate on labor in the EU fell to 34.2% in 2008 from 35.8% in 2000. Consumption and corporate taxes have increased slightly in the last decade. (Tax cutting has been a disaster as it has led to competitive wage deflation, and competitive currency devaluation differentials between the Euro, FXE, based countries and the developing Europe, GUR, countries. The result has been a plummeting standard of living in countries such as Romania and a devastation of Hungary’s currency. And now that the sovereign debt bubble and carry trade currency bubbles have burst, countries such as Greece and Hungary have fast falling levels of gross domestic production. The chart of developing Europe, GUR, compared to Europe, FEZ, shows that investors rapidly sold out of the emerging Europe countries as the European Sovereign Debt crisis started to emerge; and then on April 26, when the currency traders heaving sold off the Euro, FXE,  they sold off the developing countries currencies even more, resulting in an ever-widening differential between Europe and its neighbors. Now countries like Hungary have lost their seigniorage capability in the sovereign debt market place and are reliant on the predatory International Monetary Fund, IMF, for money)

Despite the huge disparities between taxes in different countries, why don’t people and companies in Europe move more often? EU surveys indicate that language, cultural comfort and salaries are more important to Europeans than tax rates. (There is indeed language and cultural xenophobia in Europe; and those who have good salaries want to stay put; and one living in Norway or Sweden would never willing accept the developing Europe standard of living and high unemployment.)

II … My general comments

Estonia was one of the countries that participated in the Milton Friedman inspired neoliberal revolution in developing Europe. The economic philosophy of neoliberalism became government policy in Estonia where privatization, mitigation of collective bargaining, and development of free trade brought carry trade investments and credit from banks in Europe and the developed world.   With the 2008, sub-prime driven, economic collapse, came an unwinding of carry trades and a demand for repayment of loans as well as austerity measures and taxes as an internal devaluation. The economic bubble burst and now Estonia has a high level of unemployment, and finds itself difficult to export in spite of competitive wage deflation against the rest of Europe. The entrance of Estonia into the Euro regime, will assure its economic destruction as it participates in the ongoing debt deflation and currency deflation of the Euro. Neoliberalism and it’s political peer, neoconservatism, both originating from the Chicago School of Economics, have been the engines of globalization. Beginning January 1, 2011, Estonia will be tightly integrated into the European Region of Global Governance, one of ten regions called for by the Club of Rome in 1974.

According to Wikipedia, Friedman allowed the Cato Institute to use his name for its biannual Milton Friedman Prize for Advancing Liberty beginning in 2001. A Friedman Prize was given to former Estonian Prime Minister during 2006.

Although Friedman never visited Estonia, his book Free to Choose exercised a great influence on that nation’s then 32-year-old prime minister, Mart Laar, who has claimed that it was the only book on economics he had read before taking office. Laar’s reforms are often credited with responsibility for transforming Estonia from an impoverished Soviet Republic to the “Baltic Tiger”. A prime element of Laar’s program was introduction of the flat tax. Laar won the 2006 Milton Friedman Prize for Advancing Liberty, awarded by the Cato Institute. Cato Institute provides a profile of Mart Laar.

The book Free To Choose empowered a liberation movement according to Naomi Klein: “… indeed the most successful liberation movement of our time, which is the movement by capital to liberate itself from all constraints on its accumulation … So, as we say that this ideology is failing, I beg to differ. I actually believe it has been enormously successful, enormously successful, just not on the terms that we learn about in University of Chicago textbooks, that I don’t think the project actually has been the development of the world and the elimination of poverty. I think this has been a class war waged by the rich against the poor, and I think that they won.”

III … Milton Friedman was the “great liberator of women” as well as the “great liberator of investors”; but, the Beast Regime of Neoauthoritarianism is going to claw back many of the advances of the former regime of Neoliberalism.

Lauren Streib in the same September 26, 2011, issue of Newsweek Magazine, in article entitled, Where Women Are Winning, documents that women living in the Nordic Countries of Iceland, Sweden, Denmark, Finland, Norway and Netherlands, are in the top ten best places to be a woman. It was Milton Friedman, who provided the Free To Choose script of floating currencies that has underwritten the northern european socialist regimes’ capability to provide better justice, health, education, government, and political gains than anywhere else in the world.

But now the Beast Regime of Neoauthoritarianism is rising out of the Mediterranean Sea profligates, The Beast System has seven heads, symbolic of occupation in mankind’s seven institutions, and ten horns, symbolic of governance in all of the world’s ten regions; and it will claw back many of the advances of the former regime of Neoliberalism, as it uproots democracies throughout the world. And it will enforce a totalitarian collective in each of the world’s ten regions. Totalitarian Collectivism is the the EU’s future. Liberty and Free Enterprise are mirages on the Neoauthoritarian Desert of the Real. Choice is the epitaph on the tombstone of Neoliberalism. Diktat is the order of the future, and serves as the sovereign authority of the Ten Toed Kingdom of regional economic government.

IV … I am not a Libertarian, yet I do mention that Libertarians, who perceive themselves to be sovereign individuals, do not believe in taxes; in fact they are quite offended by the concept of taxes, much as Christians are offended by sinful activities — they do not want any part of them and view them as death.

Libertarians do not believe in taxes or any other form of redistributive justice as the reveals in their coverage of F. A. Hayek’s The Road to Serfdom, especially his chapter “Planning and the Rule of Law”.

Mark Amagi writes that in Law Legistlation, and Liberty: The Mirage of Social Justice (Vol. 2, University of Chicago Press, 1976), Friedrich Hayek explores the concept of “social justice” or distributive justice, which he finds wanting and destructive of any real understanding of justice.

Libertarian Robert Wenzel posts Richard Epstein on Inequality and High Taxes.

I find it interesting that Libertarianism and Neoliberalism sprang forth, like beasts, from the University of Chicago. And I believe that if Libertarianism would have won out over Neoliberalism, there would never had been any credit bubbles; and society would be even more pyramidal than it is today.  “We the people” would all be serfs beholding to a wealthy few. It’s been far better to have had the Neoliberal Elite and the Neoconservative Elite, than to have had the Libertarian Elite governing. At least we have had comic relief  in Mad Magazine fashion with leaders such as the most recent George Bush