Archive for September, 2010

The Mother Of All Bear Markets Likely Commenced September 27, 2010

September 28, 2010

The Fed claims that it stopped its first Quantitative Easing, QE, program back in March 2010, and that there were no additional debt monetizations between then and the announcement of its QE lite program on August 10, 2010.

However, the Plunge Protection Team, PPT, has pumped billions into Wall Street on options expiration weeks. On non-expiration weeks the PPT has either withdrawn money or has made small money pumps.

Of  late, the Fed’s purchasing of Treasuries from Wall Street Primary Dealers, via its Permanent Open Market Operations, POMO, has been the accelerant for the stock market. It’s best called the POMO rally

A bear market in stocks likely commenced in stocks on Monday September 27, 2010, as the currency traders sold the EUR/JPY down from 113.67 to 113.47 ….. This is seen as a bearish harami in FXE:FXY at 114.  As the EUR/JPY falls lower from 113.47 and the Euro, FXE, falls from 134,  then stocks, ACWI, will fall lower from 43.00. 

The Fed may announce QE 2 on November 3, 2010 … If it does, it will be gold inflationary.

I had been thinking it wise to go short the market, as the EUR/JPY, has reached full expansion, but after reading Tyler Durden’s article ….. Why QE2 + QE Lite Mean The Fed Will Purchase Almost $3 Trillion In Treasurys And Set The Stage For The Monetary Endgame ….. I’ve concluded that further fiat asset expansion is possible if the Fed does come out with a surprise QE 2.

Yes, QE 2 may come November 3, 2010 …. The Federal Reserve may announce a plan to buy US Treasuries, it may simply print Dollars, $USD … Yes simply print, and print and print and print; and buy US Government Debt, to prevent a deflationary collapse.

This of course would send the value of the US Dollar, $USD, plummeting, and would be quite inflationary to many assets, especially gold, $GOLD.

I think it wise to buy gold, specifically gold coins, at this time, even though a Surprise QE 2 is likely coming on November 3, 2010, or sometime thereafter, which may create a demand for US Government bonds.

I wrote European Financials, Banks And Real Estate Trade Lower As The Euro Yen, And Swedish Yen, Carry Trades, Stall Out ….where I suggest that the “mother of all bear markets” likely commenced 9-27-2010. Euorpean Financials, EUFN, has fallen from support of 22.5. And Banks KBE has fallen below support of 23.

The Business Insider writes that the WSJ Reveals Secret Committee Tasked With Saving The Euro During Depths Of Financial Crisis.  The heretofore unknown group, dubbed “The Group That Doesn’t Exist”,  was comprised of sub-minister level government officials who kept their discussions top-secret, even keeping discussions hidden from their own government leaders, for fears that leaks would shake Eurozone confidence. The task force met in the shadows of the EU’s many councils and summits in Brussels, Luxembourg and other capitals, often gathering at 6 a.m. or huddling over sandwiches late at night. Participants kept colleagues in their own governments in the dark, for fear leaks would trigger rampant speculation in financial markets. Potential crisis candidates were obvious: Portugal, Ireland, Greece and Spain, a group of deeply indebted states derisively tagged with the acronym “PIGS” by bond traders. A gap quickly opened up between Germany, attached to euro-zone rules it viewed as banning bailouts for profligate countries, and France, which wanted greater freedom for national governments to support each other as they saw fit.

I report that in early September 2010, the EU finance ministers announced framework agreements for oversight of financial services; these largely follow the blueprint proposed by a working group headed by Jacques de Larosière. The framework agreements established a new European Systemic Risk Board, ESRB, under the aegis of the European Central Bank , ECB; and created three new European Supervisory Authorities, ESAs,  for banking, securities and insurance. The ECOFIN announcements  federalized economic governance over Eurozone financial services, and established a region of global governance; the age of sovereign nation states is  over.   

Vice-governor of the Czech National Bank Mojmir Hampl, in WSJ article The Euro’s Instability Pact relates: “It is impossible to effectively enforce supra-national rules among nation states that have sovereign budgets”  … and contends: “A monetary union without a state is a unique experiment. By definition, the national budgetary sovereignty of the euro-zone’s members doesn’t go too well with the strict enforcement of supra-national rules. It is like having the power to sentence culprits but leaving it up to them whether they actually go to prison”.

Edward Hugh in article And Then There Were None, writes: “Meantime, according to a report in the Financial Times over the weekend, Europe’s leaders are once more at odds among themselves about just how much carrot and how much stick the various national governments need to get their economies back into line. Predictably it is Paris talking about carrots, and Berlin who is talking about sticks. But all this talk of what to do about those countries who in the future fail to stick to the new set of rules which are apparently being prepared monumentally misses the point: what we need are some policies which help the most affected economies get out of the mess they have found themselves in following the way the monetary and fiscal policy rules were implemented last time round.”

Bible prophecy of Revelation 13 reveals that a Sovereign, a ruler, and a Seignior, a top dog banker who takes a cut, are coming to govern Europe very soon; and the same can be said of the world, as well.

I’ve enjoyed posting my thoughts on sovereignty and seigniorage here on EconomicReview Journal … I am taking a break from writing articles. God Bless all.

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Silver Soars And Stocks Rise As Currency Traders Call The Euro, Swedish Krona, And Other Currencies Higher

September 25, 2010

I … Silver, SLV, rose 1.7% and World Stocks, ACWI, rose 2.3% on Friday, September 24, 2010, as currency traders took the Euro, FXE, 1.3% higher to 134.41.

The daily chart of ACWI shows a lollipop hanging man candlestick at the top of an ascending wedge, suggesting that the four week rally in world stocks is done and over. I provide a wave count of “2 up”, and ready to begin on “3 down”. The coming 3 down will be the final 3 down. The number three wave builds wealth on the way up and destroys wealth on the way down. There is coming soon a total destruction of fiat stock wealth, that is why I am invested in gold bullion, $GOLD.

The Euro Yen carry trade, that is the EUR/JPY, as seen in the chart of FXE:FXY, has risen to strong resistance.

The Australian Yen carry trade, as seen in the chart of FXA:FXY, has reached completion.

The Swedish Krona carry trade, as seen in the chart of FXS:FXY, has reached completion.

 

The chart of the Euro, FXE, and that International Discretionary, IPD, which rose 13%, in the last 4 weeks, communicates that the European Bank Stress Test Rally and the FOMC Rally are over.

Daily Chart of the Euro, FXE

Weekly Chart of IPD

Some of the top performing ETFs for the last four weeks include:
1) Copper Miners, CU, 21% … Euro Rally and Australian Dollar Rally and Risk Acceptance of the BHP buyout of POT.
2) Emerging Market Small Cap Dividend, DGS, 11% … Flight to safety in the emerging markets
3) India Earnings, EPI, 15% … Flight to higher interest rates in India
4) European Financials, EUFN, 11% … Euro Rally
5) Australia, EWA, 13% … Currency Rally
6) Sweden, EWD, 20% … Currency Rally
7) Spain, EWP, 12% … Euro Rally
8) Singapore, EWS, 8% … Flight to safety of an Asian offshore haven; the chart of Singapore shows the hot money flow that has come out of Europe and into Asia.

9) Dow Jones Internet, FDN, 15% … Internet Rally
10) Frontier nations, FRN, 5% … Flight to safety in the frontier markets
11) Internet, HHH, 16% … Internet Rally
12) India, INP, 17% … Flight to higher interest rate in India
13) International Discretionary, IPD, 13% … Flight to safety
14) Tin, JJT, 13% … Euro Rally; the lollipop at the top of an ascending wedge indicates that maximum carry trade investment has been achieved in the commodity Tin.

15) Leisure And Entertainment, PEJ, 15% … Flight to safety
16) Retail, PMR, 12% … Flight to safety
17) Nasdaq Internet, PNQI, 16% … Internet Rally
18) Nanotechnology, PXN, 14% … Euro Rally
19) Small Cap Pure Value, RZV, 11% … Euro Rally
20) Small Cap Consumer Discretionary, XLYS, 13% … Flight to safety
21) Semiconductors, XSD, 13% … Semiconductor Rally
22) Malaysia, EWM, 7% … David Yong of Bloomberg reltes: “Malaysia’s ringgit traded near a 13-year high on speculation the nation’s yield advantage over developed countries will lure more overseas investment.”

II … The twin spigots of investment liquidity have been shut off.

The first spigot: the above charts show that yen carry trade investment has expanded as much as it can, given that Japan intervened in the currency markets on September 15, 2010, to stop the rise of the Yen, FXY.

The second spigot: the US Federal Reserve Quantative Easing, that is QE, ended on March 1, 2010. There is nothing else the US Central Bank can do to stimulate the economy or markets.

The chart of Junk Bonds, JNK, gives confirmation that investment liquidity has peaked out. The world has passed through peak credit. The world has passed from an age of prosperity and into an age of debt servitude.

III … Global competitive currency deflation has been introduced by the intervention of the Japanese Prime Minister in the currency markets, … and it will re-introduce the debt deflation that came with the April 26, 2010 onset of the European Sovereign Debt Crisis.

Tyler Durden of Zero Hedge relates the first global currency wars are now declared fully open as the Brazil Central Bank to buy Dollars in Spot Currency Market … and … Peru Central Bank Buys US Currency.

The ratio of the small cap pure value shares, RZV, to the small cap pure growth shares, RZG. RZV:RZG Weekly, communicates that debt deflation will be an ongoing force destroying stock value.

Unlike some popular economic pundits who coddle their readers, I relate that The Bond Bull Is Dead, as the 30:10 US Sovereign Debt Curve, $TYX:$TNX, is flattening.

And gold mining stocks will no longer be a safe haven investment as the chart of the junior gold mining shares relative to gold, GDXJ:GLD, shows that the junior gold mining stocks, GDXJ, are disconnecting from the price of gold.

Developed market currencies, DBV, have reached their price objective. Unlike emerging market currencies, CEW, the developed currencies, DBV, are burdened by growing sovereign debt and rising sovereign credit default swaps.

Scott Hamilton of Bloomberg reports: “Britain posted the largest budget deficit for any August since records began in 1993 as debt costs soared … Net borrowing was 15.3 billion pounds ($23.7bn), compared with 13.5 billion pounds a year earlier.”

Emma Ross-Thomas and Joao Lima of Bloomberg report: “Portugal’s budget gap widened in the first eight months of the year … The central government’s shortfall rose to 9.19 billion euros ($12bn) from 8.74 billion euros a year earlier … Tax revenue rose 3.3% … and spending increased 2.7%.”

The developed currencies relative to the emerging currencies traded down this week, as is seen in DBV:CEW Daily. And the DBV:CEW Weekly has hit resistance and turned lower, suggesting that depreciation is going to get underway in the major currencies. Those who live in the frontier markets, such as Peru, EPU, are the more fortunate compared to those living in the US, with its Russell 2000 companies, IWM, highly dependent upon well functioning banking and credit markets, as the latter will be at ground zero for adversity and austerity. In the coming age of chaos, I believe that food commodity prices, FUD, will be going higher. I expect volatility, VXX, to pick up Monday September 27, 2010. And I expect inverse volatility, XXV, to fall lower.

For those interested in short selling, I recommend the following eight ETFs from my ChartList of Stocks and ETFs to sell short for a debt deflationary bear market: their 4 week gains are shown; the stocks have been run up; now they will be run down. All I can say is get ready for investment shock and awe.
1) Sweden, EWD, 20%
2) Spain, EWP, 12%
3) European Financials, EUFN, 11%
4) Small Cap Pure Value, RZV, 11%
5) Consumer Discretionary Small Cap, XLYS, 13%
6) Active Real Estate, PSR, 6%
7) Semiconductors, XSD, 13%
8) Australia, EWA, 13%

For the experienced trader, I recommend selling short DRN, SOXL, and TNA as well as UPV, INDL, EZJ, URE, RETL, URTY and USD and TMF and UBT.

IV … For those interested, I provide various Finviz Screeners:
1) A listing of 50 stocks, whose composite value approximates the world stocks, ACWI.

2) A listing of 50 stocks and ETFs to consider for short selling

3) A listing of Direxion and ProShares Inverse ETFs to sell short

4) A listing of the major currencies

5) A listing of commodities

V … In today’s news

A … Richard of RightwaysBlog provides the Dr. Tan Sri Lin See-Yan report of current economic conditions in Japan asserting that Yentervention is needed, as deeply entrenched deflation grinds on in Japan. The Nikkei 225, ^N225 dropped 1.6% this week, down 10.2% for the year, relates Doug Noland of Prudent Bear.

B … At Jackson Hole, Fed chairman Bernanke remarked: “Central bankers alone cannot solve the world’s economic problems.”

I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US, a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts.

This person will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing/Renting Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have created and serviced mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

And I envision that in Europe, with a fall in the EUR/JPY from 113, there will be stock deflation, with the European Shares, VGK, falling below 49, and European Financials, EUFN, falling below 22.50. Then a liquidity crisis will emerge, where there will not be enough buyers for sellers of stocks as well as bonds, causing small business failures, and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone Credit Seignior” and provider of liquidity to Europe.

While some write that Ms Warren has been appointed as a lapdog, I believe that Ms. Warren, is more likely to turn out to be the top dog, that is the Seignior, meaning top dog who takes a cut, and be called upon in time of crisis, to assume the role of Financial Regulator overseeing investment, banking, lending, credit, seigniorage and house leasing as her many articles would apparently qualify her for such a role.

C … Swissness Is Highly Regarded In Asia, Says Hong Kong Banker

Lynnley Browning of the The New York Times reports on the new offshore safehaven for wealthy investors: For centuries, Switzerland has been the sanctuary of choice for wealthy people seeking to hide their fortunes and evade taxes. Now, amid a growing crackdown on Swiss private banking, the rich are flocking to Singapore and Hong Kong, which still offer some of the world’s most secret accounts.

But there is a twist in this shift to the East: Many of the banks growing in these low-tax oases have Swiss pedigrees. And their clients are not only Asia’s growing number of millionaires but also wealthy Americans and Europeans who, lawyers say, have been spooked by mounting scrutiny from the tax authorities in their own countries.

From UBS, which operates a training center in Singapore, to smaller private banks like Julius Baer, Swiss banks and those with Swiss-based operations are tripping over themselves to expand in the region.

“We have seen a massive uptick in hiring hundreds of private bankers” in Singapore and Hong Kong “to take the business leaving Switzerland,” said Raymond W. Baker, the director of Global Financial Integrity, a research institute in Washington.

Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan Law School, called the two Asian locales “the new alternative” to Swiss bank secrecy after the shackles placed on UBS by the United States last year.

UBS, the largest bank in Switzerland, has lost an estimated 200 billion Swiss francs, or about $200 billion, in assets from private banking clients over the last two years. But in Asia, it has won more new money than it has lost, according to an August presentation to investors by the bank’s chief executive of wealth management, Jürg Zeltner.

The bank would not give actual figures. But it did say it was planning to hire an additional 400 “client advisers,” or private bankers, for its Asia-Pacific region, on top of the current 867.

In February, UBS raised bonuses for Singapore bankers who bring in new clients. The Singapore government is one of the bank’s biggest shareholders, with about 9 percent, since diluted, bought in late 2007.

Credit Suisse’s top private banking executive, Walter Berchtold, said this month that net new assets coming into the bank from rich clients in Asia would grow more than 20 percent a year, more than triple the global average the bank has forecast.

At Julius Baer, whose headquarters are in Zurich, its board met in early September in Singapore, the first such convening there.

“We call it our second home market,” said Jan Vonder Muehll, a spokesman for Baer, adding that the bank planned to double its assets there and in Hong Kong, to 25 percent of its total, within five years. “Swissness is highly regarded in Asia,” he said.

Ronen Palan, a professor of political economy and an offshore finance specialist at the University of Birmingham in England, said that “all the evidence suggests that Singapore is making a concerted effort to replace Switzerland as the global center for private banking.”

The shift has taken place amid an attack on Switzerland’s private-banking industry, long a crown jewel and world leader.

In 2007, the Justice Department began a criminal investigation into UBS and, later, other Swiss banks for selling private banking services to wealthy Americans that allowed them to evade taxes.

Last year, UBS paid $780 million to settle the case. It later agreed to lift the veil of Swiss bank secrecy and disclose the names of 4,450 American clients to the Internal Revenue Service.

About the same time, European tax officials began gaining possession of discs stolen from Swiss banks that held data on thousands of clients, and a strengthened European Union directive required banks to withhold a minimum level of tax even on secret accounts.

Richard Murphy, a founder of the Tax Justice Network, a British research firm focused on offshore havens, said that amid the changes, “Singapore is where the Swiss can now find the banking secrecy they’ve lost at home.”

Hong Kong, he said, is a close second.

Critics, including Mr. Murphy, point to Singapore’s Swiss-style secrecy provisions; lack of taxes on capital gains and most foreign dividends; and system that allows depositors to open accounts in the guise of corporations, trusts and limited liability companies.

While Hong Kong does not have formal bank secrecy laws, it allows the formation of opaque companies that often serve as conduits for tax evasion. It also does not tax capital gains or deposit interest, and for corporations, it taxes only income produced in Hong Kong. “Both are serious players,” Mr. Murphy said. “Both offer serious opacity.”

Google Finance Chart of Singapore, EWS and Hong Kong, EWH, … EWS and EWH for the period of March 25, 2010 to September 24, 2010, shows that Singapore has risen 15% and Hong Kong 11%.

D … Tatiana Bautzer and Gabrielle Coppola of Bloomberg report: “Sales of securities backed by Brazilian real estate assets are surging to a record as homebuilders and mall owners expand amid the fastest economic growth in two decades.”

E … Doug Noland of Prudent Bear writes: The Government Finance Bubble thesis holds that government debt is the latest – and greatest – episode of Hyman Minsky’s “Ponzi Finance.” During Q2, the markets accommodated a $2.0 Trillion annualized pace of federal debt growth. In just eight quarters, federal government debt expanded $3.610 TN, or 54%, to $10.308 TN. In a short 24 months, federal debt has jumped from 46% to 71% of GDP. And as long as the markets allow such unprecedented issuance of non-productive Credit at historically low yields, it’s quite possible that household incomes, corporate earnings, the general economy, and the securities markets might appear ok. Heck, Washington seems awfully determined to resuscitate asset prices. But we don’t have to look back too many quarters for a stark reminder of the nature of Ponzi Dynamics and Fragilities.

F … Tyler Durden of Zero Hedge reports Three Wholesale Credit Unions Nationalized As US Securitizes $50 Billion In Legacy Toxic Assets

As for the funding of the new bailout program: “To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.” Once again, uncle Sam bails out those who have committed federal crime and sticks Joe Sixpack with the bill. How is it a crime? “Under federal rules, wholesale credit unions were supposed to invest only in safe, liquid assets. But some institutions chased higher returns by loading up on securities backed by subprime mortgages or other risky loans. Their portfolios were decimated by the mortgage meltdown.”

I comment: The reality here is that US Federal Government, not the NCUA, is the Seignior providing the credit for the credit union bailouts. I did not know that the US had the legal authority to provide seigniorage, that is securitization, for the credit unions.

The report continues: “As part of the plan announced Friday, regulators will eventually wind down the operations of the five failed credit unions, which together had about $50 billion in shaky mortgage-backed securities on their books, according to Larry Fazio, NCUA’s deputy executive director. Based on current market values, those securities are worth roughly half of their face value, representing a potential loss of $25 billion.”

Mr. Durden comments, that one reader relates: “The federal government now runs the student loan business, has controlling interest in the American auto industry, and controls the wholesale credit industry, which essentially gives them control of retail credit unions via control of their investment assets. They want control of the health insurance industry and will take control by running the private insurance companies out of business. They want control of individual medical decisions, with veto authority.”

Symbols used in this report

Financial Regulator, Credit Seignior, Credit Boss, Seigniorage, Seignior, FXE, FXY, FXA, FXS, EWS, EWH, IWM, RZV, SLV, ACWI, GLD, IPD, JJt, JNK, RZV, GDXJ, DBV, CEW, EPU, IWM, FUD, VXX, XXV, EWD, EWP, EUFN, XLYS, EWA, XSD, PSR, DRN, SOXL, TNA, UPV, INDL, EZJ, URE, RETL, URTY, USD, TMF, UBT, VGK

Stocks Weaken On Europe Worries And Job Numbers

September 23, 2010

Financial market report for September  23, 2010

I … Stephen Bernard of the Associated Press reports that stocks fell as new worries emerged about Europe’s economy and the U.S. job market.

Traders were disappointed to see first-time unemployment claims rise last week, breaking a recent trend of declines. The Labor Department said claims jumped by 12,000 and are still at levels that signal employers are not significantly adding new jobs. Economists polled by Thomson Reuters had forecast claims would remain unchanged.

European markets fell and the euro dropped against the dollar after a closely watched reading on business activity in the 16 countries that use the euro weakened more than expected. It was the latest sign of trouble in Europe, which investors had largely stopped worrying about since a debt crisis in Greece eased this spring. Adding to the gloom was news that Ireland’s economy contracted 1.2 percent in the second quarter

II … Shawn Pogatchnik, of the Associated Press, writes Irish, Portuguese Bond Sell Off Fans EU Debt Fears.

Investors sold off Irish and Portuguese bonds Thursday, driving the borrowing costs of both countries to euro-era records and reinforcing worries about the heavy debts some European governments are carrying.

III … Currencies traded lower against the Yen, causing an unwinding of carry trades and currency crosses.
The chart of the day is that of the Euro, FXE,  which fell to 132.69.

The Swedish Krona, FXS, fell to 144.09.

The Australian Dollar, FXA, fell to 95.23.

The US Dollar, $USD, rose to 80.09

The Japanese Yen, FXY, rose to 117.35.

The rise in the chart of JYN reflects strength in the Yen.

The Euro-Yen carry trade, the EUR/JPY, fell; as is seen in FXE:FXY falling lower.

The Swedish Krona-Japanese Yen carry trade, fell; as is seen in FXS:FXY falling lower.   


The Australian Dollar-Japanese Yen carry trade, the AUD/JPY, fell; as is seen in FXA:FXY falling lower.    
 

IV … Stocks fell lower
World Shares, ACWI, fell 0.9%.

The fractal fall lower in the ratio of the small cap pure value shares, RZV, relative to the small cap growth shares, RZG, …. RZV:RZG … communicates two important concepts. First, the debt deflation bear market, that commenced with the onset of the European Sovereign Debt Crisis in April 2010, has returned. And second, competitive currency deflation, that is competitive currency devaluation, has introduced a global financial bear market.     


Fallers of the day included:
Sweden, EWD, 3.0%
Europe, VGK, 1.5%
Australia, EWA, 1.0%
Asia Excluding Japan, EPP, 0.7%
Singapore, EWS,  0.7%
Columbia, GXG, 1.6%
Frontier Markets, FRN, 0.9%
Emerging Markets, EEM, 0.6%

Active Real Estate, PSR, 2.8%
Residential Estate, REZ, 2.6%
Industrial Office Real Estate, FIO, 2.5%

Small Cap Pure Value, RZV, 1.5%
Russell 2000, IWM, 1.5%

Europe, VGK, 1.5%
Ireland, EIRL, 2.6%
Spain, EWP, 1.8%

European Financials, EUFN, 2.1%
Banks, KBE, 1.8%
Nasdaq Banks, QABA, 1.0%
India Earnings, EPI, 0.8%
American Express, AXP, fell 1.0%

The ratio of European Financials, EUFN, relative to Emerging Market Financials, EMFN,  … EUFN:EMFN … communicates that the distress and deterioration that occurred with the onset of the European Sovereign Debt Crisis of April 2010 has returned.


Housing, ITB, 1.7%
Industrials, XLI, 1.5%
Nanotechnology, PXN, 1.4%
Airlines, FAA, 1.2%
Entertainment And Leisure, PEJ, 0.9%
The S&P, SPY, fell 0.8%


The fall in real estate as seen in the chart of Active Real Estate, PSR, which lost 2.8% today, communicates a new dynamic at work. When taken in conjunction with the fall in Banks, KBE, the FASB 157 entitlement to value real estate at the bank manager’s best estimate rather than at market has ended. The ability for the real estate cartel consisting of the banks and the the GSEs Fannie Mae and Freddie Mac, to pretend and extend unreal real estate prices is done and over. This means that the GSE policy of loss mitigation will be taken seriously and those living payment free in the bank’s shadow inventory will be foreclosed upon and then either evicted or asked to pay rent. The corporate mission of banks will change from one of lending to one property management and renting of REO properties. I think of the FASB 157 entitlement as an options contract, and the reemergence of the bear market, this time knocking down real estate sector value has made the FASB 157 entitlement/option contract expire worthless. Americans will be very much surprised to see the value of their home values plummet in value. And unfortunately, it won’’t be like in Hungary, where the government lets people go scotch free in paying of Swiss Franc and Euro denominated carry trade mortgages.  


Risers of the day included

Small cap pure growth, RZG, rose 1.1%
Semiconductors, XSD, rose, 0.6%
Brazil, EWZ, rose, 1.1%

V … Commodities traded mixed

Timber, CUT, fell 1.4%.

Base Metals, DBB, rose; causing Tin, JJT, to rise manifesting a questioning harami.


VI … Volatility rose
Inverse S&P Volatility, XXV, fell 1.8%. Its reasonable to include this ETF in one’s short selling portfolio.


VII … Bonds barely rose.

Bonds, BND, rose 0.02%, manifesting a dark filled candlestick closing at 82.44, which is below its high of 82.57.


The 20 to 30 Year US Government bonds, TLT, rose 0.29%, manifesting a dark filled lollipop hanging man candlestick. The chart provides clear, cogent and convincing evidence, that a top has been made in US Government Debt and that Treasuries cannot sustain wealth. As these fall lower, then the value of the Federal Reserves Excess Reserves will fall lower. Fidelity Capitol and Income, FAGIX, fell 0.11% lower to close at 8.97. Its portfolio, consists of distressed securities, and thus approximates the value of the US Federal Reserve Balance Sheet, as the Fed took in these types of securities under its TARP Facility, overseen by Elizabeth Warren, as it nationalized the Banks, KBE, and the-too-big-to-fail-banks, RWW. The truth is that the banks and the US Federal government are one in the same thing. The US Federal Reserve program of QE created state corporatism, that is state corporate rule over America.  

Chart of TLT


Chart of FAGIX — It trades similarly to Junk Bonds, JNK. One can realistically think of the US Federal Reserve as a repository of junk debt. All the good stuff, the US Treasuries are in Excess Reserves.  


The 30:10 US Government Yield Curve, $TYX:$TNX, fell lower: the yield curve flattened today. An ongoing flattening sovereign debt yield curve, will act to continually destroy bond wealth of all types, including the longer out maturity corporate bond wealth, BLV.   

VIII … The world has passed through Peak Fiat Wealth … Gold has risen to become sovereign wealth as well a the world’s sovereign currency

Junk Bonds, JNK, have fallen lower for the third straight day, communicating that the world has passed through Peak Liquidity. We have gone from an era of prosperity into an age of debt servitude. Unwinding carry trade investment will continually work to destroy junk bond values.

Given, that currencies and stocks fell lower today, and that bonds, BND, have topped out, Peak Wealth has been achieved.

Debt deflation and competitive currency deflation is now at work destroying currency and stock wealth. And a flattening US Sovereign Debt Yield Curve is now at work destroying bond wealth.
Thus a triad of deflationary forces are at work destroying fiat wealth.

Gold, $GOLD, rose 0.08% higher, to close at 1292.30. Gold is now the world’s sovereign currency and undisputed storehouse of investment wealth. Wealth can no longer be preserved by investing long in either stocks or bonds.


For those interested in short selling I present a ChartList of Stocks and ETFs to sell short for a debt deflationary bear market where I present a number ot things to sell short including DRN,TNA, URE, URTY, USD, EZJ, UCO, UXJ, UPV, SOXL, RETL, INDL, UXJ which I present in this Finviz Screener the portfolio of which is up 4.7% since September 20, 2010. Chart of URE is presented below; it


Today, Jordan Robertson, of the Associated Press wrote after the bell that Advanced Micro Devices Inc. has lowered its third-quarter outlook, supplying fresh evidence that consumers’ penny-pinching on personal computers has led to a painful back-to-school shopping season for some technology companies. AMD is the world’s No. 2 maker of PC microprocessors, the “brains” of those machines. Its announcement reinforces a message the computer industry has been sending for the past month: stubborn unemployment and worries that the global economic recovery is sputtering have caused many consumers to close their wallets when it comes time to buy a new PC. The rise in semiconductors, XSD, today provided an excellent opportunity to go short semiconductors, specifically short SOXL  

IX … Symbols used in this report

BND, TLT. BLV, JNK, GLD, XXV, FXE, FXS, FXA, UUP, FXY, JYN, ACWI, SPY, RZV, RZG, EWD, JJT, VGK, FAA, EWD, CUT, EWA, EPP, EWS, GXG, PXN, EUFN, EMFN, ITB, XLI, FRN, EEM, PSR, REZ, FIO, IWM, EIRL, EWP, PEJ, KBE, QABA, EPI, AXP, DRN,TNA, URE, URTY, USD, EZJ, UCO, UXJ, UPV, SOXL, RETL, INDL, UXJ, XSD,

FASB 157, EUR/JPY, AUD/JPY, euro yen carry trade, yen carry trade, carry trade investing, debt deflation, competitive currency deflation, yield curve, peak wealth, peak liquidity, investment liquidity,

Gold Rises As Traders Take Profit On The FOMC Rally ….. And The EUR/JPY Rises To Near Pre-Sovereign Debt Crisis Level

September 22, 2010

Financial market report for September 22, 2010

Traders took profit from the recent rally by selling a broad spectrum of rally leaders:

Software, SWH, -2.8

Industrial and Office Real Estate, FIO, -2.4

Nasdaq Community Banks, QABA, -2.3

Airlines, FAA, -2.2

Small Cap Consumer Discretionary, XLYS, -2.0

Semiconductors, XSD, -1.8

Banks, KBE, -1.8

Small Cap Pure Value, RZV, -1.7

Housing, XHB, -1.5

Russell 2000, IWM, -1.2

Leisure And Entertainment, PEJ, -1.2

Real Estate, PSR, -1.1

Residential Real Estate, REZ, -0.9

European Financials, EUFN, -0.8

World stocks, ACWI, traded lower. This despite a higher Euro Yen carry trade, EUR/JPY, which rallied Base Metals, DBB, including Tin, JJT, higher.

The chart of FXE:FXY shows today’s run up in the euro yen carry trade by the currency traders; and suggests that peak efficiency has been or is being achieved in the carry trade. 

Sweden, EWD, rose slightly higher on a strong rise in its currency, the Swedish Krona, FXS. The dark cloud covering in the chart of FXS:FXY suggests that the Swedish Krona Yen carry trade has reached peak performance. 

Australia, EWA, did not rise, even though the Australian Dollar, FXA, rose. The chart of FXA:FXY suggests that peak efficiency in the AUD/JPY is being or has been achieved. 

Mexico, EWW, rose slightly higher on a strong rise in its currency, the Mexico Peso, FXM.

Hong Kong, EWH, soared Timber, CUT, fell lower. Oil, USO, fell lower.

The Euro, FXE, was easily called higher from yesterdays rally, to a stronger level of resistance at 133.3. The Euro had fallen from the region of 135 to 136 at the onset of the European Sovereign Debt Crisis in late April 2010.

For carry trade profits, the Yen, FXY, was called higher to 117.1, which is the area where the Bank of Japan is likely to intervene to stop the rise in its currency. Financial Times reports Moves To Weaken Yen Not Over, Says Kan. The Bank of Japan and Kan have declared war on the currency traders to stop the rise of the Yen: “Japan and the currency traders have scorched the investment skies” … “Welcome to the investment desert of the real” … “We have a new investment matrix” … “We ain’t in Kansas no more” … Kan’s selling of Yen on September 15, 2010, has started global competitive currency devaluation.

The debt deflationary bear market that commenced April 26, 2010 with the currency traders selling the major currencies against the Euro has recommenced, as is seen in the ratio of the small cap pure value shares, RZV, falling more than the small cap growth shares, RZG ….. The chart of RZV:RZG shows today’s bearish engulfing candlestick.

 Bonds, BND, rose with the longer out Zeroes, ZROZ, rising more than the medium duration US Government Bonds, TLT, reflecting in the 30:10 yield curve, $TYX:$TNX, continuing strong today presenting a doji at 1.469. The 15+ Year TIPS, LTPZ, exploded higher.

Soon, the Euro, FXE, will fall lower from the 133, 134, 135 area as under debt deflation, all currencies including the Euro, will be falling lower into the pit of financial abandon, albeit at differing rates, as currency traders and global leaders conduct global currency wars. With the sell of the Yen by the Bank of Japan on September 15, 2010, the world passed from abundant credit liquidity to ever diminishing credit liquidity.

Peak Credit occurred Monday September 20, 2010 with the value of Junk Bonds, JNK, peaking out at 39.71. The Global Credit Bubble has been pricked. The world has gone over the tipping point; it has passed from prosperity to debt servitude. The chart of Junk Bonds, JNK, reflecting the fall of investment liquidity, is the investment chart of the century.

Gold, $GOLD, moved to a new high today as stocks turned lower. Gold is the Soveign currency and storehouse of investment wealth. Gold mining stocks are not physical gold: one is a tangible form of wealth and the other is not.

The following chart information suggests that one might be wise to transfer out of paper wealth, that is gold mining stocks, and into real wealth, that is gold.

The junior gold mining shares, GDXJ, manifested a black filled doji, atop an ascending wedge; the chart of GDXJ relative to GLD, GDXJ:GLD, suggests a top is being made in the junior gold mining shares. x The chart of the HUI Precious Metal Mining shares, relative to US Bonds, $HUI:$USB, indicates that the gold mining stocks, GDX, generally fall lower with Treasuries at market turns lower in debt. 

For those interested in short selling I provide a Chartlist of Stocks and ETFs to sell short in a debt deflationary bear market.

Bonds Rise And Stocks Trade Lower As Analysts See No Further Purchases Of Treasuries By The Fed

September 21, 2010

I … Today, September 21, 2010, the Euro, FXE, rose near its 200 day moving average in advance of the FOMC meeting and closed at 131.83.  Vanguard European Stocks, VGK, rose 0.17%. Spain, EWP, rose 0.72%.


But debt deflation recommenced in world stocks, ACWI, today as these fell 0.37%, as bonds, BND, rose 0.37%, on a steepening 30:10 yield curve, $TYX:$TNX, … as “No further expansion of its purchase program for Treasuries is likely”, reports the Khaalej Times, on the FOMC meeting and announcement.

High Grade Corporate Bonds, LQD, rose 0.76. Junk Bonds, JNK, turned lower with stocks. Tips, TIP, soared to a new high.

ACWI The chart of World stocks, ACWI, shows a lollipop handing man candlestick suggesting that the recent rally is over.

The S&P, SPY, manifested a bearish harami, suggesting that the rally is over.


The chart of Bonds, BND, communicates that the world has passed through Peak Credit.

The 30:10 US Sovereign Debt Yield Curve, $TYX:$TNX Chart shows today’s dramatic steepening on the Fed’s announcement, as the longer out maturity debt investments, such as ZROZ, rose more than the shorter duration investments such as TLT.  


Bond traders had seen the Feds purchases of US Treasuries as monetization of debt, which caused the Yield Curve to flatten August 10, 2010; and then caused bonds, BND, to break down September 1, 2010.

This week the Euro, FXE, is likely to fall lower as currency traders call major currencies, DBV, lower to match the Bank of Japan selling Yen on September 15, 2010, to stop the rise in its currency.

The FAA ETF is the investors weather vane; it rises immediately prior to stock down turns. Today was no exception as it rose significantly before the afternoon stock market sell off, confirming its usefulness in predicting market sell offs.

The September 20, 2010 rally was simply a green shoot rally in a Bear Market that started April 26, 2010 when currency traders sold the major currencies against the Yen.

II … The Bank of Japan in selling Yen on September 15, 2010, has commenced competitive currency deflation; and thus started a more aggressive from of debt deflation than that of April 26, 2010, which accompanied the European Sovereign Debt crisis, exploding on the worlds financial markets. Confirmation of competitive currency devaluation is seen in the ratio of small cap pure value shares, RZV, relative to small cap pure growth shares, RZG, falling lower

RSV:RZG Daily


RSV:RZG Weekly

Sweden, EWD, rose 1.25% on a soaring Swedish Krona, FXS.  The Swedish Krona-Yen carry trade, FXS:FXY, does show a breakout. But this is not confirmed by an accompanying Euro-Yen carry trade, FXE:FXY, nor an accompanying Australian Dollar-Yen, carry trade, FXA:FXY, The rise in the Euro, FXE, yesterday and today, was accomplished by a spectacular number of purchase of long the Euro contracts   

The world currencies carry trade, DBV:FXY, shows stymied.

World currencies, DBV, rose 0.34% and developing currencies, CEW, rose 0.58%; the rise of the latter caused  emerging market small cap dividend shares, DGS, to rise; its weekly chart  shows how  investors  have  found safe haven investment here from the European Sovereign Debt Crisis and the Recession in America.

The world currencies, DBV, relative to the developing currencies, CEW, has hit resistance; the outlook is down for the world currencies.

DBV:CEW Daily

III … The spigots of investment liquidity are being turned off. The chart of DBV:CEW Weekly communicates the major central banks in executing dollar swaps and quantative easing “has been turned off”.  

The other spigot of investment liquidity, has been carry trade investing; but that basically came to an end on September 15, 2010, with the Bank of Japan acting unilaterally to stop the rise in the value of its currency by the “selling” the Yen, FXY.

 

Now with the “spigots of investment liquidity” off, debt deflation will be actively reducing stock wealth.

And the yield curve will be flattening reducing bond wealth.

So total fiat wealth destruction will be getting actively underway, all thanks to the currency traders. The age of fiat wealth growth, that came through Milton Friedman, neoliberal economic policies, of “free to choose” investing and “floating currencies”, is over and done.  

While we are in the “twilight of investment liquidity”, the currency traders activated the Yen carry trade today, September 21, 2010, to sustain the Euro, FXE, and drive it, and European, VGK, shares higher.

And they activated the Yen carry trade in driving the Swiss Krona, FXS, and Switzerland, EWD, shares higher.

In so doing, they “pulled” the Yen, FXY, higher; but the Bank of Japan will act to intervene in a rise above 117 and sell more Yen; and it will do whatever is necessary to stop the rise of the Yen. Yes, they will if necessary destroy the value of their currency.

Confirmation of  the end of investment liquidity and the passage from the age of prosperity into the age of the end of credit comes from the chart of Junk Bonds, JNK. topping out.

The currency traders and the Bank of Japan have “scorched the skies” …. welcome to the investment desert of the real … we are living in a new investment matrix … “we ain’t in Kansas no more”.

IV … One should sell stocks short or invest in gold at this time; chart of $GOLD

I provide a ChartList of Stocks and ETFs to sell short for a debt deflationary bear market; I find it interesting that in the midst of a recession, that the companies most injured by the recession have being run-up investors, this includes Las Vegas Sands, LVS, and the entertainment and leisure ETF, PEJ,  The chart list shows  KBE, EUFN,  ITB,     EIRL, GDXJ, LVS, EWW,  PGX, PMR, IWN, XSD, XLYS, EWP, EWD, JJT, HHH, TAN, REZ, NNI,  LCAPA,  EXPD,  PPD,   CMG ,KME,  PXN ,FDN, FIO, PSR, BRF ,CU, JYN ,FRN,  PLCE ,  PETM, TTM, RZV, XXV,AAPL, EPI,  SWH, CUT,  DTV, CF, JNK, PEJ,  QABA, EPP, DE ,  AZO , WRLD

Its an opportune time to go short the leveraged Retail  ETF,  RETL. as well as  DRN, TNA, URE, URTY, USD, EZJ, UCO ,UXJ , UPV, SOXL , INDL , UXJ

 

Retailers such as the Children’s Place, PLCE, are prime for short selling. Oil prices fell  rewarding those  short  UCO and base metal prices fell, rewarding those who were short  JJT .

Gold rose, GLD, but the junior gold mining shares, GDXJ, traded slightly lower.

Is The World On The Eve Of A Major Financial Downturn?

September 20, 2010

GMAC Stops Some Evictions

The Janna Herron Associated Press article entitled GMAC Stops Some Evictions, Foreclosed Home Sales relates: In a deposition taken in December, GMAC employee Jeffrey Stephan said he signed 10,000 affidavits or similar documents a month without personally verifying who the mortgage holder was. That means many foreclosures could have taken place based on false documentation. Stephan could not be located for comment.

“That’s hundreds of thousands of cases,” said Ice Legal PA attorney Christopher Immel who took the deposition. “And there are other people at other places who sign these kinds of documents as well.”

GMAC did not address how many homeowners would be affected by its suspension of evictions and foreclosure sales. It expects the issues to be resolved within a few weeks or, at latest, by year-end. The company didn’t respond to questions beyond its statement.

The issue of documenting who holds the mortgage is not unique to GMAC. Judges and lawyers nationwide are taking a second look at foreclosure affidavits. Many mortgages have been sliced up and sold to many investors as securities and that makes it harder to determine who is the ultimate mortgage holder.

In August, a judge in Duval County, Fla., ruled that JPMorgan Chase could not foreclose upon two homeowners because Fannie Mae carried the mortgage on its books and JPMorgan Chase only serviced the loan. JPMorgan Chase had identified itself as the owner of the loan. Similar cases across the country are pending.”

I conclude that GMAC has stopped foreclosing because the mortgage was securitized by Wall Street, that is, it was bundled and resold.

And then that paperwork was probably divided and sold.

So the legal issue arises as to who actually owns the mortgage; and can one produce paperwork to document that mortgage ownership; and thus be able to proceed on with foreclosure.

I’m not at all sympathetic to Wall Street Bankers. Rather I’m sympathetic to the “underdog”.

Is it right for the person living in the home to be foreclosed on, if the person taking action can’t produce legal ownership? You know the rule of law is: “if you sell something that is not yours, you go to the state or federal pen.”  

If I were a judge in a foreclosure proceeding, I would be concerned that the documents presented by GMAC were fake documents.

So we have more of a situation where people are living payment free in houses.

Today, Mortgage Bankers, traded by the ETF, KME is trading at 39.85, which is below support of 40 going back to May 2009. It is likely to fall lower this week, as I believe that the FOMC will not provide any hope to Wall Street Traders.

Get Ready For Investment Shock And Awe

Tomorrow, September 21, 2010 the currency traders are likely to sell the Euro, the Swedish Krona and the Australian Dollar in response to the FOMC meeting.

Today, September 20, 2010, the currency traders went long the the Australian Dollar, FXA, and the Swedish Krona, FXS, in front on the US Federal Reserve Meeting, causing stocks to rise.

The currency sensitive and thus financially sensitive stocks and ETFs rose the most, this included the Small Cap Consumer Discretionary, XLYS, Small Cap Value, RZV, the Russell 2000  IWM, Nasdaq Community Banks, QABA, Europe, FEZ, and Sweden, EWD, Australia, EWD, and Asia excluding Japan, EPP.

The FAA ETF, the investors weather vane, which rises immediately prior to stock down turns, rose significantly. The higher Euro, FXE, called OIl, USO, higher. Whereas Natural Gas, GAZ, failed, falling almost 4%.  The copper miners ETF, CU, manifested a massive lollipop hanging man candlestick, indicating a reversal is at hand. Ireland, EIRL, fell 1%, indicating that the way forward is down on European sovereign debt and banking issues.

Today, September 20, 2010 was simply a green shoot rally in a Bear Market that started September 17, 2010, as currency traders unleashed a global currency war by selling the Euro, FXE, in response to the Bank of Japan intervening in the currency markets on September 15, 2010, and selling Yen, FXY, to stop the rise of its currency; this caused the Yen to fall to its 20 day moving average, which in turn terminated long carry trade investing.  

The Bank of Japan in selling Yen has “commenced competitive currency devaluation”; and thus started a more aggressive from of debt deflation than that of April 26, 2010 which accompanied the European Sovereign Debt crisis exploding on the worlds financial markets: translated into plain English, this means stocks are going to fall fast and hard!  

One should sell stocks short or invest in gold at this time; for the former I suggest that one visit my ChartList of Stocks and ETFs to sell short for a debt deflationary bear market; for the latter, i suggest that one visit the local coin store.

I ask … Will a Financial And Credit Regulator Arise As Credit Runs Dry?

I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US, a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts.

This person will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing/Renting Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have created and serviced mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

And I envision that in Europe, with a fall in the EUR/JPY from 112, there will be stock deflation, with the European Shares, FEZ, falling below 36, and European Financials, EUFN, falling below 22.50. Then a liquidity crisis will emerge, where there will not be enough buyers for sellers of stocks as well as bonds, causing small business failures, and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone Credit Seignior” and provider of liquidity to Europe.

While many write that Ms Warren has been appointed as a lapdog, I believe that Ms. Warren, is more likely to turn out to be the top dog, that is the Seignior, meaning top dog who takes a cut, and be called upon in time of crisis, to assume the role of Financial Regulator overseeing investment, banking, lending, credit, seigniorage and house leasing as her many articles would apparently qualify her for such a role.

Gold is Sovereign Wealth

Gold, GLD, traded up today. The rise of gold has been established as it as the sovereign currency and best means of preserving wealth. Over time as people see traditional wealth in currencies, stocks and bonds falling lower, they will rush to buy gold and its price will be maintained. Gold will become more expensive in the world’s currencies: its price certainly did inflate inflate in terms of yen this last week. I find it interesting that its price jumped immediately before the Bank of Japan’s announcement.

In Today’s News

EuroIntelligence reports  ECB bails out Irish bonds, after a report warning about the downgrade of Irish covered bonds; FT Alphaville explains in detail that the problem is due to the liquidity of the commercial assets backing those bonds; the Greek troika agrees to postpone the stress test for Greek banks – in line with the European policy never to test a bank that stands a chance of failing a test; Jean Quatremer has an intriguing report about a telephone call with Pierre Lellouche, the French European minister, just ahead of Sarkozy’s fateful press conference; Wolfgang Munchau says the real problem with the state of the European Union is not that fact of its decline, but the manner; The French do not appreciate Nicolas Sarkozy’s populist outbursts; Angelo Baglioni says the problem with Basel III is not the effect on the economy, but the likelihood of another financial crisis; Simon Johnson and Peter Boone, meanwhile, come out in favour of what they call a Trichet bond.

Bear Market Commences As Currency Traders Unleash A Global Currency War By Selling The Euro

September 18, 2010

A bear market in stocks started September 17, 2010 as currency traders sold the Euro, FXE, in response to the Bank of Japan intervening in the currency markets on September 15, 2010 and selling Yen, FXY, to stop the rise of its currency; this caused the Yen to fall to its 20 day moving average, which in turn terminated “long carry trade investing”. The Euro, FXE, fell 0.32% to close at 129.88


This termination of “long carry trading” is reflected in the ratio of the small cap pure value, RZV, to small cap pure growth, RZG, shares, RZV:RZG, falling lower on September 16 and 17, 2010. This value hit resistance at .820 and .810, and closed at .795.  The last time this metric had a significant sell off was on April 26, 2010 when the currency traders sold the world’s currencies against the Yen, FXY, as the European Sovereign Debt Crisis came to a head.


The termination of “long carry trade investing” is definitely seen in the yen carry trade charts as of September 17, with the  FXE:FXY, FXC:FXY, XRU:FXY and FXS:FXY turning lower, and FXA:FXY, manifesting a dark cloud cover candlestick.

FXE:FXY


FXS:FXY


I provide the weekly chart of the Australian Dollar, FXA. I stand in awe as to how strongly it has performed. I have no crystal ball as to how quickly it will fall.


The ratio of major currencies to emerging market currencies, DBV:CEW, manifested a bearish lollipop hanging man candlestick at 50 day moving average, suggesting a fall lower is imminent, that is, the major currencies depreciating faster than the emerging currencies.  

The Bank of Japan in selling Yen has commenced competitive currency devaluation; and thus started a more aggressive from of debt deflation than that of  April 26, 2010 which accompanied the European Sovereign Debt crisis exploding on the world’s financial markets. Translated into plain English, this means stocks are going to fall fast and hard.

The Currency Traders sold the Euro, FXE, on September 17, 2010, causing Spain, EWP,  the European Financial Institutions, EUFN, and the European Shares, FEZ, to fall lower.

David Oakley of The Financial Times reports on  September 15, 2010:  “The European repurchase, or repo, market has enjoyed record trading volumes in a sign that the financial system, which came close to breaking down in the aftermath of the collapse of Lehman Brothers, is returning to health.  The value of the repo market, considered vital to the functioning of the financial markets, has jumped 25% to €6,979bn from six months ago, beating the previous high recorded before the credit crisis … The new record in outstanding repo volumes in June shows trading in the market has rebounded sharply since December 2008, when it fell to €4,633bn, and surpasses the previous record of €6,775bn in June 2007 – two months before the credit crisis blew up.”

Ralph Atkins of the Financial Times reports on September 13, 2010:  “In November last year, Jean-Claude Trichet, European Central Bank president, had a blunt message for bankers and politicians. Addressing the annual European banking congress … he warned emergency measures were all very well, ‘but if their use is prolonged, they can lead to dependence and even addiction.’  Ten months later, evidence is growing that ‘addiction’ by banks in eurozone countries such as Portugal, Ireland and Greece to ECB liquidity support remains high, and may even have increased. That is despite the improvement in the global economic climate and the boost to confidence in the eurozone financial system that July’s bank ‘stress test’ results were supposed to bring.”

The yenguy says: “The Bank of Japan and the currency traders have torched the skies” …..”we are in a new investment matrix” ….. “welcome to the desert of the real” ….. “we ain’t in Kansas no more”.

Wave 3 Down commenced in both the S&P, SPY, and world stocks, ACWI, on April 26, 2010 as currency traders sold the world’s currencies against the Yen as the European Sovereign Debt Crisis came to a head.

Wave 3 of 3 Down commenced in World Shares, ACWI, on September 17, 2010, when the shares  fell 0.40% lower, manifesting a bearish engulfing candlestick, as the currency traders sold the Euro -.32%, the Canadian Dollar -.43%, the Swedish Krona -.45, against the Yen +03%, in response to the Bank of Japan intervening and selling Yen on September 15, 2010.


The S&P, SPY, traded 0.04% higher on September 17, 2010, manifesting a bearish lollipop candlestick, as currency traders sold the Euro -.32%, the Canadian Dollar -.43%, the Swedish Krona -.45, against the Yen +03%.  A Wave 3 of 3 Down is likely to commence September 20, 21010, as currency selling becomes more pronounced.


The ETF, FAA, is the Investors Weather Vane reflecting expansion or contraction. It is the Predictor, it inevitably rises immediately before the markets turn lower. It rose immediately before the April 26, 2010 European Sovereign Debt crisis; and rose again before the August 10, 2010 downturn; and now has risen again; its rise signals a storm coming in stocks.


The world  entered into an Elliott Wave 3 of 3 down, in world stock wealth on September 17, 2010. The third Elliott Wave is the most sweeping and dynamic of all waves. It is the one that builds wealth on the way up and destroys wealth on the way down. The end result for this current bear market will be a total destruction of stock wealth.

On August 31, investors sold out of Bonds, BND, which included ZROZ, and BLV, in response to the August 10, 2010 announcement by Fed Chairman Ben Bernanke to buy mortgage backed securities. Investors see the announcement as monetization of debt, and the market place called a defacto interest rate hike. The 30:10 Yield Curve, $TYX:$TNX, is now flattening. This will operate for years to destroy bond wealth bond in the public and private sectors.


Junk bonds, JNK, which have been leveraged up by abundant credit liquidity and yen carry investing of all sorts, closed up 0.79% for the week completing a three white soldiers advance.


Richard Bravo of Bloomberg reports on September 15, 2010::  “Record sales of speculative-grade bonds this year have chipped away at the wall of debt coming due through 2012, even as companies failed to reduce borrowings relative to earnings, according to Moody’s… About $55 billion of high-yield, high-risk bonds mature through 2012, down 37% from $87 billion in February, Moody’s analysts led by Kevin Cassidy … said… Companies issued about $120 billion of junk bonds in the first half of the year, up from $63 billion over the same period in 2009.”

The end of credit commenced September 17, 2010 as currency traders sold the euro against the yen, calling currencies in general lower in response to the Bank of Japan acting unilaterally to sell Yen to stop the rise in its currency: this amounts to a scorched earth policy on the part of the currency traders.  

With the sell of the Yen by the Bank of Japan, and the sell of the Euro by the currency traders,  Friday September 17, 2010 marks a historic pivot point. The world passed from abundant credit liquidity to ever diminishing credit liquidity. Peak Credit occurred Friday September 17, 2010. The 0.18% fall in the value of Junk Bonds, JNK, documents that the Global Credit Bubble has been pricked. The world has gone over the tipping point; it has passed from prosperity to debt servitude.

So now, carry trades are unwinding delveraging stock investment value; and the yield curve is flattening destroying bond wealth. Derivatives such as credit default swaps, and interest rate swaps will escalate downward pressure. So there is a complete triad of investment oppression.  

Will a Financial And Credit Regulator Arise As Credit Runs Dry?

I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US, a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts.

This person will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing/Renting Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have created and serviced mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

And I envision that in Europe, with a fall in the EUR/JPY from 112, there will be stock deflation, with the European Shares, FEZ, falling below 36, and European Financials, EUFN, falling below 22.50. Then a liquidity crisis will emerge, where there will not be enough buyers for sellers of stocks as well as bonds, causing small business failures, and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone Credit Seignior” and provider of liquidity to Europe.

While many write that Ms Warren has been appointed as lapdog, I believe that Ms. Warren, is more likely to turn out to be the top dog, that is the Seignior, meaning top dog who takes a cut, and be called upon in time of crisis, to assume the role of Financial Regulator overseeing investment, banking, lending, credit, seigniorage and house leasing as her many articles would uniquely qualify her for such a role.

Gold is Sovereign Wealth

Gold, GLD, manifested a lollipop hanging man candlestick and traded 0.07% lower. The rise of gold has been established as it as the sovereign currency and best means of preserving wealth. Over time as people see traditional wealth in currencies, stocks and bonds falling lower, they will rush to buy gold and its price will be maintained. Gold will become more expensive in the world’s currencies: its price certainly did inflate inflate in terms of yen this last week. I find it interesting that its price jumped immediately before the Bank of Japan’s announcement.

For all of those who have forex accounts, I hope your broker recommended the week ending September 17, 2010, going short the EUR/JPY, short the AUD/JPY, and long the USD/JPY. I believe the Euro and other currencies are going down, and that the US Dollar, $USD, traded by  UUP will be going up; and JYN, which is  the inverse of USD/JPY, will be going down, for a while.

Please understand I am not an investment professional, and I do not recommend numismatic gold coins. I am not a talk show or TV host who peddles liberty, being paid by media moguls or by oil company presidents who also underwrite the Tea Party. I am a blogger who writes on sovereignty and seigniorage, and I do recommend physical gold bullion ownership.   

For those interested in short selling I provide a ChartList of stocks and ETFs to sell short for a debt deflationary bear market.

I also provide a Finviz Screener of stocks and ETFs to sell short;  EWA, KBE, EUFN, ITB, EIRL, GDXJ, LVS, EWW, PGX, PMR, IWN, XSD, XLYS, EWP, EWD, JJT, HHH, TAN, REZ, NNI, LCAPA, EXPD, PPD, CMG, KME, BZ, PXN, N, FDN, FIO,P SR, BRF, CU, JYN, FRN, PLCE, PETM, TTM, RZV, XXV, AAPL, EPI, and SWH

And I also provide another Screener of Inverse ETFs to sell short: DRN, TNA, URE, UVT, USD, EZJ, and UCO.

One stock group I recommend selling is the Gold Miners, GDXJ and GDX, as when stocks fall lower, and as debt, ZROZ, falls lower, and as carry trades unwind, these will be falling lower as well. The chart of gold relative to gold mining shares, GDXJ:GLD will soon be turning down; and the chart of the HUI precious metal mining shares relative to bonds, $HUI:$USB, will be turning down, as carry trade investment comes out of the gold mining shares.

Symbols Used In This Report   

AUD/JPY, EUR/JPY, USD/JPY, Carry Trade, Bank of Japan Intervention, Yen Intervention, Competitive Currency Devaluation, Yield Curve, Peak Credit, Liquidity Evaporation, Liquidity Crisis, Financial Regulator, Seignior, Seigniorage, Elizabeth Warren, FAA, JNK, UUP, FXE, FXY, FXA, FXS, FXM, FXC, XRU, GDXJ, GDX, JYN, BND,  ZROZ, BLV, EWP, FEZ, EUFN, RZV, RZG, SPY, ACWI, DRN, TNA, URE, UVT, USD, EZJ, UCO,

In today’s news

I … Randall W. Forsyth in Barrons writes Central Banks Embrace Risky Currency Gambit stating that “currency intervention is the new race to the bottom. And relates that competitive currency devaluations during the 1930s, wound up further contracting world trade even as nations tried to gain advantage for their exports to stimulate their own flagging economies.”

“First, interest rates were slashed by central banks in reaction to the credit crisis of 2008. Then, they ballooned their balance sheets with massive bond purchases in what euphemistically was called “quantitative easing.”

Now, with short-term interest rates in most major economies at or near zero percent, central banks have run out of basis points, the main weapon in their arsenal. Moreover, their QE has had far less than the expected impact.

Having run out of conventional options of lowering short-term interest rates and getting less from their relatively unconventional tool of buying bonds to bring down long-term rates, central bankers are utilizing their next option—currency intervention.

That was a forecast from MacroMavens proprietress Stephanie Pomboy in her Sept. 10 missive to clients, which quickly became fact Wednesday when the Bank of Japan surprised the currency markets by intervening to drive down the yen. It was a surprise because nobody took the Japanese threats seriously to dump yen and buy dollars seriously.

But the Bank of Japan reportedly bought an estimated ¥2 trillion, or $23 billion, worth of dollars, a hefty purchase even in the context of the multi-trillion currency market. What’s even more important, the Japanese central bank left the resulting extra ¥2 trillion in the money market.

Previously, the BOJ’s practice had been to offset, or “sterilize,” purchases of currencies with sales of securities to keep bank reserves unchanged. (To review, when a central bank buys an asset, be it a Treasury bill or a foreign currency, it creates liquidity by issuing a check literally out of thin air, which gets deposited in the account of the bank that sold it the T-bill or currency.)

As ISI Group’s Washington research team points out in a note to clients, Japan’s forex intervention effectively was a form of QE because it wasn’t sterilized. It was different from the Fed’s QE in that the U.S. central bank tried to lower long-term interest rates. In Japan, the benchmark 10-year government bond yield already is close to 1%, so there’s not much room for it to fall. And with short rates already just above the floor of zero, the forex market was the main way to pump in liquidity. And, of course, Japanese exporters were bleeding with the yen at a 15-year low of about ¥82 to the dollar, far from the ¥95 rate they estimate they need to be profitable.

Yet there’s another subtext to the Bank of Japan’s currency intervention, a geopolitical one that relates to China. Chinese authorities bought a reported ¥1.04 trillion ($12 billion) of Japanese government bonds in June and July, which at the margin would have driven up the yen’s exchange rate, both relative to the dollar and by extension, the Chinese yuan.

As notes Ashraf Laidi, chief market strategist of CMC Markets in London, Japan’s finance minister commented, “I don’t know the true intention” of China’s big JGB purchases. While the BOJ’s intervention was mainly assessed in terms of the yen-dollar exchange rate, “it is important to evaluate this currency dynamic from a Japan-China perspective,” he writes in a research note.
Also writes David Zervos, managing director for global-fixed income strategy at Jeffries & Co., the Japanese forex intervention was directed at China. “It was a forceful statement to the largest reserve manager in the world—’You ain’t gonna beggar this neighbor.'”

Zervos cites the phrase describing the competitive currency devaluations during the 1930s, which wound up further contracting world trade even as nations tried to gain advantage for their exports to stimulate their own flagging economies.

Fast forward to the present. Thursday, Treasury Secretary Geithner called for “a sustained period of appreciation” in the yuan to eliminate the Chinese currency’s undervaluation. That did little to mollify Congressional critics, such as Sen. Charles Schumer, the New York Democrat who charged “China’s currency manipulation is like a boot on the throat of our recovery and this administration refuses to try to get China to remove that boot.”

Meantime, the decline in the dollar following the Japanese intervention also could create a lot of tensions, most notably in Europe, which hardly needs a stronger euro,

Zervos also observes. That was underscored by credit default swaps on Ireland’s government debt blowing out to a record on a report speculating Eire could be on the brink of requesting assistance from the European Union or the International Monetary Fund if losses at its banks worsen.

One salutary side effect of the European sovereign-debt crisis has been the retreat in the euro—from over $1.50 at its peak in 2009 to under $1.20 earlier this year before its recovery to $1.30—which has boosted exports, especially from Germany.

Finally, the Federal Reserve could be on the verge of launching QE2. The Federal Open Market Committee meets Tuesday, when it could announce additional purchases of Treasury securities. At the August confab, the panel said it would start replacing maturing mortgage-backed securities with Treasuries instead of letting the MBS run off.

The FOMC could also hold off any new purchases until the Nov. 2-3 meeting, which will conclude the day after the mid-term elections. Traditionally, the Fed would prefer to lay low during the political season.

Any further Fed purchases of Treasuries would work against the BOJ’s forex interventions by boosting dollar liquidity and, all else being equal, depressing the greenback, and in turn, boosting the yen. The BOJ’s dollar purchases, meanwhile, would likely be invested in the Treasury market and help finance the trillion-dollar-plus federal budget deficit.

But there is a potential dark side, concludes Pomboy. While the worldwide push down on interest rates “unleashed a torrent of capital, lifting all economic ‘boats’ and bringing the world together, pushing down [currencies] will tear the world apart. Everybody can lower rates simultaneously. Everybody cannot debase their currencies at once.”

Having the world’s reserve currency gives the U.S. the advantage in this race to the bottom. But the destruction of the world’s reserve currency threatens to end the Era of Globalization, Pomboy concludes, and with it the quality-of-life-enhancing disinflation and productivity that it brought.

One reason for optimism that won’t happen is policy makers seem to have learned from history and seem intent not to repeat the mistakes of the past. The rapid, forceful and internationally coordinated response to the near meltdown of the global financial system in 2008 was to avoid a rerun of the 1930s and the failures of policy then.

The collapse of international trade then resulting from the waves of currency crises and other protectionist measures transmitted the Great Depression around the globe; that is another lesson learned from that era.

Nevertheless, the path of least resistance for paper currencies is lower while governments fight over shares of stagnant economies. That seems to be the message of gold’s rally.”

II …. Barry Gray of WSWS.org writes Economic Crisis Threatens To Unleash Global Currency Wars.:

“Two events this week have highlighted the growth of global economic tensions and the slide toward international trade and currency wars.

On Wednesday, Japan unilaterally intervened in currency markets to drive down the exchange rate of its currency by selling an estimated 1 trillion yen (worth some $20 billion). The move, the first such intervention by Japan in more than six years and the country’s biggest ever one-day currency action, breached a tacit agreement among the established industrial powers to avoid unilateral currency moves.

Japan had threatened such action after the value of the yen in relation to the dollar rose by more than 10 percent since May. The Japanese currency also climbed sharply in relation to the euro and the Chinese renminbi. Tokyo, heavily dependent on exports, had warned that it would take action to protect its industries from the negative effect of the yen’s rise on its ability to sell goods abroad.

The following day, US Treasury Secretary Timothy Geithner testified in two separate congressional hearings on Chinese currency policy and demanded that Beijing allow its currency to rise faster and more steeply, tacitly threatening retaliatory action if the Chinese regime refused to do so. Congressmen and senators from both parties blamed China for the loss of American jobs and criticized the Obama administration for failing to officially declare China a “currency manipulator” and impose tariffs and other penalties on Chinese exports to the US.

The eruption of currency exchange conflicts is bound up with mounting signs that the global economic crisis is systemic, rather than merely conjunctural, and growing fears that a genuine recovery is not in the offing. The European sovereign debt crisis and the weakening of US economic growth have led governments around the world to seek to secure a greater share of export markets. Under conditions of slowing growth and stagnant markets, this inevitably heightens trade conflicts between competing capitalist nations.

In particular, the US and the European Union, spearheaded by the export power Germany, have aggressively pursued a cheap currency policy in order to gain a trade advantage against their rivals. Of the major economic powers, Japan has suffered the greatest damage from these policies, as investors and speculators have shifted from dollar- and euro-denominated investments to the yen, driving up the currency’s exchange rate.

This has embittered relations between Japan and both the US and the EU. Japan has also denounced China for artificially keeping its currency low while bidding up the yen by increasing its purchases of Japanese government securities.

Japanese Prime Minister Naoto Kan ordered the selloff of yen one day after he survived a bid by rival Democratic Party of Japan leader Ichiro Ozawa to unseat him. The markets were taken by surprise, thinking that the defeat of Ozawa, who had called for stronger action to halt the appreciation of the yen, lessened the likelihood of an intervention.

The Japanese currency had hit a series of 15-year highs versus the dollar. By late Wednesday, the yen had dropped nearly 3 percent in relation to the greenback. On Thursday, Kan warned that additional interventions were possible, pledging to take “resolute action” to further reduce the value of the yen.

Japan is the first of the old-line economic powers to intervene in currency markets in response to the global crisis, but the practice is more general and it is spreading. South Korea, Thailand and Singapore have all seen their currencies rise some 30 percent versus the Chinese renminbi. They and Taiwan have been active in currency markets, purchasing dollars to slow the rise of their currencies.

Brazilian Finance Minister Guido Mantega said this week that his country was readying a dollar-buying strategy to curb the appreciation of his country’s currency, the real.

While the US and European central banks and governments have not officially commented on the Japanese action, they have let it be known that they deem it to be hostile to their interests. Jean-Claude Juncker, who chairs the 16-member group of euro zone finance ministers, said, “Unilateral actions are not an appropriate way to deal with global imbalances.”

US Congressman Sander Levin (Democrat from Michigan), who chairs the House Ways and Means Committee, suggested at Thursday’s hearing on Chinese currency policy that Japan’s intervention meant it had a “predatory exchange rate policy.”

The Japanese move set off warnings of an outbreak of competitive currency devaluations, similar to those that contributed in the 1930s to a collapse in world trade. “It almost gives everyone else the right to intervene unilaterally and trigger a competitive devaluation process,” said Noriko Hama of Japan’s Doshisha University.

The Wall Street Journal quoted Denis Gould, AXA Investment Managers’ director of investment for Asia, as doubting the long-term effectiveness of unilateral interventions in lowering the value of the yen. “To make this move stick,” he said, “it needs the US to play, as well as the Chinese.” He continued, “Nobody will do it in a coordinated manner because nobody wants their currency going up. Everywhere in the world there are problems with economic growth.”

Ted Truman of the Peterson Institute in Washington said, “This action is symptomatic of the sense that at the moment it is every country for itself.”

Thursday’s testimony by US Treasury Secretary Geithner before the Senate Banking Committee and the House Ways and Means Committee was staged for the purpose of ratcheting up pressure on China. Treasury is required under law to report to Congress by October 15 on international currency relations, and name those countries deemed to be “currency manipulators.” Any country so designated is subject to tariffs and other penalties on its exports.

The hearings became a forum for legislators of both parties to fulminate against China, assuming a populist pose of defending American jobs. They exemplified the reactionary use of economic nationalism to divert popular anger away from the American ruling class and government and scapegoat other countries–in this case China–for the social disaster produced by US capitalism.
Prior to the hearings, 100 members of the House of Representatives, the majority of them Democrats, sent a letter to House Speaker Nancy Pelosi calling on her to bring to a vote a bipartisan bill mandating the government to impose tariffs and other penalties on countries that undervalue their currency.

Earlier in the week, the United Steelworkers union filed a complaint with the US trade representative against Chinese practices in the renewable energy field.

The Obama administration, for its part, announced on Thursday the bringing of two cases against China before the World Trade Organization. One accuses China of blocking imports of a specialty steel product and the other of denying US credit card companies access to its markets.
In opening the Senate Banking Committee hearing, Chairman Christopher Dodd (Democrat of Connecticut) declared China a currency manipulator and said its “economic and trade policies” present “roadblocks to our recovery.” He went on to accuse China of stealing intellectual property, violating international trade agreements and dumping goods. He also denounced China for acquiring national resources in developing countries and building up its military.
In his opening statement, the ranking Republican on the committee, Richard Shelby of Alabama, declared, “There is no question that China manipulates its currency in order to subsidize Chinese exports. The only question is: Why is the administration protecting China by refusing to designate it as a currency manipulator?” Senator Charles Schumer, a New York Democrat, said, “China’s currency manipulation is like a boot on the throat of our recovery and this administration refuses to try to get China to remove that boot.”

In his statement to the committee, Geithner dismissed as inadequate China’s moves since June to allow the renminbi to appreciate versus the dollar. The Chinese currency has risen about 1.5 percent since then. On the day of the hearings, it had its strongest close on Shanghai markets since it began trading in 1994.

Geithner indicated a reluctance to officially declare China a currency manipulator and he did not take a position on the anti-Chinese bill in the House. But he stated categorically that the renminbi was undervalued.

“We are concerned,” he said, “as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited… China needs to allow significant, sustained appreciation over time to correct this undervaluation and allow the exchange rate to full reflect market forces.”

The treasury secretary suggested that China should raise its exchange rate by at least 20 percent and issued a thinly veiled threat, noting that “China has a very substantial economic stake in access to the US market.”

III … Vincente Fernando reports in Business Insiser Now Brazil is Intervening to Weaken its Currency, As the Competitive Devaluation Cycle Heats Up.

IV … Dian L. Chu writes in Seeking Alpha article Japan’s Problem Is Bigger Than Yen writes that “some analysts are now worried about a possible global race of devalue-to-prosperity as other countries with appreciating currency may follow Japan’s lead.”

“Reuters reported that already Colombia’s central bank said it was starting to buy at least $20 million daily to slow the rise in its peso currency, and Brazil indicated it wouldn’t stand by if others weakened their currencies at Brazil’s exporting expense.

Thailand, with its baht setting a series of 13-year highs against the dollar this month, is the next most likely to jump into intervention. The Philippines has also threatened as its peso hit a two year high against the dollar. Other Asian countries are also no strangers at the currency game, with South Korea and Taiwan among the most active.”

V … Anonymous wrote on 05-09-2007 in InvestmentIndex article US Markets Set For An Imminent Crash: “The overall concern is that stock markets are now in a synchronized worldwide finance bubble, and everything from stocks,, to bonds, to commodities, to include precious metal is infected with speculative froth.”

An excellent example is China’s Shanghai stock market, which is looking more and more like a speculative bubble waiting to implode. The danger signs abound: The benchmark Shanghai Composite Index is up 50% already in 2007, following a spectacular gain of 130% in 2006. On Wednesday, it shot across the 4,000 threshold to close at a record high of 4,013.08. China’s listed firms – most of them lumbering state-owned giants for which there is little reliable financial information – are now trading at lofty multiples of nearly 50 times earnings … someday the piper will need to be paid for this excessive liquidity” …. The chart of Shanghai Composite Index, compared to China, Hong Kong and Singapore, SSE Composite, FXI, EWH, EWS, for the week ending September 17, 2010, shows a close at 2,598, down 2.5% this week; it had a recent peak of 2,698 on September 7th.

VI …  XEForexNews provides the Chris Lewis of Reuters report from Hong Kong on September 14, 2010 which describes the leverage that has come via low interest rates, and the former steepening Yield Curve, and flight from the European Sovereign Debt Crisis that produced strong demand for US Treasuries, IEF and TLT, has created a strong demand for high-yielding debt in China, Chinese developer and toll road operator Road King Infrastructure Ltd plans to price a five-year dollar bond on Tuesday, taking advantage of strong demand for the region’s high-yielding debt.

“The broad market was steady, mirroring the performance of Asian stocks, after debt spreads narrowed to a one-month low in the previous session. The Asia ex-Japan iTraxx investment-grade index was flat at 115/116 basis points (bps). It hit the lowest since early August on Monday after upbeat Chinese economic data released over the weekend spurred demand for risky assets.

Index provider Markit will roll out a new series of indexes for Asia ex-Japan credit later this month with no changes in the companies and governments comprising both its investment grade
and high yield indices.

The investment-grade Markit iTraxx Europe index was also steady at 104 bps. Asian bonds still have a room to gain even with an expected flurry of new issues, traders said. The market expected new supply from South Korean, Chinese and Indonesian companies and a sovereign bond issue from Sri Lanka this month.

‘We still see some buying, especially on the belly and the long-end of the curve,’ a Hong Kong-based trader said.

‘Investors are still bullish about U.S. Treasuries. As long as U.S. Treasury yields remain low we will see demand for high-yield bonds.’ Road King planned to price its $300 million bond due in five
years later in the day, a source close to the deal said. It has issued price guidance of between 9.50 and 9.625 percent.

Traders said it was hard to compare Road King with existing issues from Chinese developers since Road King also develops and operates toll roads. Bonds from Chinese developers rose in Tuesday morning trade, with Country Garden Holdings Co Ltd debt due in 2017 up half a point, traders said.

A recent issue from Korea Hydro & Nuclear Power, KHNP, extended gains. KHNP’s five-year bond traded 5 bps tighter at 161 over U.S. Treasuries, traders said. The debt was sold at 185 bps
above U.S. Treasuries on Thursday and has tightened since then.

More issues were out of Korea as companies took advantage of near zero rates in the United States to raise funds. State-owned Korea Finance Corp planned to issue between $500 million to $750 million of bonds later this week, a spokesman for the company said.

Waiting in the wings were Korea National Oil Corp, Korea, Electric Power Co, Korea Gas Corp and Woori Finance. Korea’s sovereign and corporate bond issues denominated in U.S. dollar, Japanese yen and euro have reached $14.4 billion so far this year, versus a record $24.3 billion posted for all of 2009, Thomson Reuters data showed.

This month, Korea Development Bank and Korea Hydro & Nuclear Power Co have raised a combined $1.4 billion from selling bonds that were oversubscribed, allowing the issuers to price their issues at the tight end of their guidance. The two deals drew nearly $9 billion in orders from investors.”

The iTraxx SovX Asia Pacific index, which tracks the five-year sovereign credit default swaps of 10
countries in the region, was flat at 112 bps, traders said.

VII … Marc Chandler in Seeking Alpha provides Observations Early in the Pacific Century  with insights into “Japans Unilateralism” and relates “Welcome to the Pacific Century.”

VIII …  Erwan Mahe in Seeking Alpha writes of A Less and Less Cooperative World.

“I  am raising this topic of protectionism today because I fear Japan’s intervention to keep down its currency does augurs well for the future. In our new globalised world, a multitude of rules of have been set up since WWII to prevent us from falling into the trap of trade tariff wars.

And yet, there is a huge difference between today’s situation and that of 1929-1930, since currencies are no longer convertible in gold but are allowed to float “freely”. It is therefore possible for countries to intervene via verbally admonition, like the United States, in a systematic and administrative manner, like China, or occasionally but abruptly, like Japan did Wednesday morning to bring down the value of their currency vis-à-vis those of rival nations as part of the great worldwide mercantilist race.

My reference to an increasing less co-operative world in today’s headline refers to Japan’s decision to act unilaterally, as opposed to acting in concert with its trading partners, like during the unsuccessfully 2002-2004 moves.

This is how Japanese Finance Minister Yoshihiko Noda put it: “Japan had informed ‘ther nations’ about its intent to intervene, but wouldn’t comment on how they reacted.” And then US Senator Levin’s comment that:  “Japan’s currency intervention is a very troubling development” … “Japan practices a predatory currency policy”.

IX … John Brinsley and Sachiko Sakamaki of Bloomberg report on September 16, 2010:  “Naoto Kan took less than 24 hours to deliver the ‘decisive action’ he pledged during a fight to remain Japan’s prime minister, selling the yen to stem criticism his response to a slowing economic recovery was inadequate.  Kan yesterday authorized the government’s first currency intervention since 2004 … The action came a day after he defeated a leadership challenge from Democratic Party of Japan rival Ichiro Ozawa, who had pledged to weaken the yen.  ‘We’ll continue to take decisive measures when necessary,’ Kan said … ‘If rapid yen movements hurt the desire of Japanese companies to invest at home, employment conditions will get worse.’  Kan’s victory over Ozawa brought political continuity to a country that has seen five prime ministers since September 2007. His immediate policy response suggests a renewed urgency to prevent a strong currency from undermining an economic recovery hampered by a dozen years of falling consumer prices.”

X … Sarah Cwiek reports on September 17, 2010 in Detroit Michigan Radio article Tax Foreclosures Surge In Wayne County:

“Wayne County County puts a record 13,000 tax-foreclosed properties on the auction block starting today (Friday).

Ted Phillips is Executive Director of the United Community Housing Coalition in Detroit. He says the number of occupied properties facing tax foreclosure jumped tenfold this year.

Phillips says the economy is driving the problem, but tacking water bills and high interest rates onto back taxes contributed to the sudden surge.

He adds the huge amount of property available raises fears that speculators could buy much of it on the cheap, further degrading already hard-hit neighborhoods.

“In past years there’s been a half a dozen out of town investors that have purchased the property,” Phillips says. “We’ve been at this now long enough to see properties that were purchased at the auction that are now coming back onto the auction because the investors don’t pay the taxes, don’t keep the property up.”

The Wayne County Treasurer’s office says the sheer number of properties is forcing them to conduct the auction online.”

XI … Rob Lieber of The New York Times Your Money covers the appointment of Elizabeth Warren to oversee the establishment of the Consumer finance Protection Bureau and suggests 7 Tasks To Get The Consumer Chief Off To A Good Start: “With the experts help I write a list of seven tasks she might turn to first: 1 Student Loans, 2 Debt Disclosure 3 Free Credit Scores, 4 Other Options for Scores,  5 Lender Guidance,  6 Business Credit,  7 More 45 day Warnings”.  

XII … Jim Kuhnhenn, of the Associated Press in article Obama Picks Consumer Adviser, Dodging Senate Fight writes Elizabeth Warren’s “job has the official status of a Cabinet undersecretary, but the title of special adviser to the president elevates her stature considerably and gives her direct access to the Oval Office. The designation appeared designed to quell worries among some Warren supporters that she would be subservient to Geithner.”

“Never again will folks be confused or misled by pages of barely understandable fine print that you find in agreements for credit cards or mortgages or student loans,” Obama said, standing alongside Warren and Treasury Secretary Timothy Geithner in the White House Rose Garden.
“Elizabeth understands what I strongly believe: that a strong, growing economy begins with a strong and thriving middle class,” the president said. “And that means every American has to get a fair shake in their financial dealings.”

Billed as a big help to abused consumers, the new bureau is charged with writing and enforcing new rules covering the largest banks to the smallest storefront payday lender. Lenders will face new restrictions on the type of mortgages they write and won’t be rewarded for steering borrowers to higher-cost loans. The bureau also is to protect borrowers from hidden fees and abusive terms.
Obama named Warren a special assistant to the president, giving her an influential province from which to direct the new bureau, a central element of the sweeping financial overhaul Obama signed into law this summer. The consumer bureau was one of Obama’s key demands, easy for the public to grasp in an otherwise dense rewrite of complex financial rules.

Liberal groups and many consumer advocates want Warren to be named director of the new bureau. With the advisory appointment in place, White House spokesman Robert Gibbs said she would be instrumental in selecting a full-time director but hedged when asked if she would be a candidate.

Obama has had a difficult time winning Senate approval for even non-controversial nominees, and the White House believed that anyone nominated to the director’s job — especially Warren — would linger without Senate action for months.

An Oklahoma native who was a state high school debate champion, the 61-year-old Warren was the architect of the consumer bureau, calling three years ago for the creation of an agency that would consolidate the consumer protection powers now spread across numerous financial regulatory agencies.

“Elizabeth is the best person to stand this agency up,” Obama said.

Yentervention Restarts The Bear Market

September 16, 2010

Financial Market Report for September 16, 2010

I … Yentervention has restarted a sell off in currencies that will produce a sell off of stocks globally.  

US Government Bonds, ZROZ, TLT, and IEF, traded down on a higher Euro, FXE. Junk Bonds, JNK, rose to a new high with a higher Euro; which also caused the distressed debt investment mutual fund Fidelity Capital and Income, FAGIX, to close higher. Trading in this mutual fund serves as a proxy for understanding the value of the investments taken in under TARP, which was headed up by Elizabeth Warren, the Harvard Law School professor, who first proposed the Consumer Financial Protection Bureau, and who has been named to a special position reporting to both President Obama and to the Treasury Secretary Geithner, and tasked with heading the effort to get the new federal agency standing.  Ms Elizabeth Warren wrote Warren, Elizabeth. “Consumers Need a Credit Watchdog,” BusinessWeek, July 15, 2009. Those who shorted the 300% US Government Debt ETF, TMF, today, profited.

Base Metals, DBB, and Gold, GLD, traded up on today’s higher EUR/JPY; but stocks, ACWI, have recognized the higher euro yen carry trade as a false flag and have turned lower. The hot money flow into the base metals, caused a short sell covering in Tin, JJT, popping it higher. And the inflow caused Natural Gas, UNG, to rise to resistance. Being that there is a glut of oil at the terminals and through out the world wide system, oil, USO, fell lower again today; it manifesting three black crows as well, rewarding those short UCO.

The Bank of Japan in selling the Yen, FXY, on September 15, 2010, has created the consequence of restarting competitive currency devaluation that occurred on April 26, 2010, with the European Sovereign Debt Crisis coming to a head. This being evidenced by the small cap pure value, RZV, shares falling more than small cap growth, RZG, shares. Those shorting the 200% Russell 2000 Value ETF, UVT, profited.  

The Australian Dollar, FXA, is down slightly. The AUD/JPY is manifesting a bearish harami, causing Australian Shares, EWA, to fall 0.9 % lower, and BHP Billiton, BHP, to fall 0.2% lower.  

On September 15, forex traders who were long the AUD/JPY, opened their portfolio to find that during the night, with the Bank of Japan’s currency operation, their position was massively larger as is seen in the chart of FXA:FXY; substantially larger than the  EUR/JPY, FXE:FXY, portfolio.


Many of the beneficiaries of the BoJs selling operation have likely gone short, producing today’s Australian Dollars, FXA, bearish harami.      

Other evidence for another bout of debt deflation, is the Mexico Peso, FXM, turning lower inducing Mexican Stocks, EWW, to fall 0.4% lower; and the Russian Ruble, XRU, to fall lower inducing Russian S&P, RBL, to fall 2.0% lower.

It is significant that the Japan shares, EWJ, are one of today’s loss leaders, despite the Nikkei 225, ^N225, trading unchanged overnight at 9500. This evidences that world stock traders believe the world is in a double dip recession that cannot produce and sustain growth. Those shorting the 200% Japan ETF, EZJ, profited.

Additional evidence for a double dip recession comes from Nuclear Energy Shares, NLR, falling 1.9% as well as the three black crows in the chart of Utilities, XLU; showing these to now longer be a safe haven investment.

The Yahoo Finance chart of Australia, EWA, Japan, EWJ, Asia, DNH, Frontier Emerging Markets, FRN, US Financials XLF, and Energy Service providers, OIH,   …. EWA,.EWJ, DNH, FRN, XLF, OIH … shows what is likely, the restarted the April 26, 2010 bear market that commenced on April 26, 2010, when the value shares failed to outperform the growth shares.

Short sell covering caused a rise in semiconductors, XSD. And a rise in the Brazilian Real, caused a rise in the Brazil Small Caps, BRF.  

The US Dollar Bull ETF, UUP, closed at 23.54 just above support at 23.50 going back in a broadening top pattern to October 2008. The US Dollar, $USD, closed at 81.25 at the edge of a broadening top pattern going back to early 2005. No wonder the gold ETF, GLD, closed up today to 124.6.   

It was on April 26, 2010, the currency traders went long the yen and short the global currencies as is seen in the MSN Finance chart of FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, XRU, FXY causing the US Dollar to rise; as can be seen in this chart from April 26, 2010 to June 7, 2010. It was later, specifically on June 7, 2010, the US Dollar, $USD, turned down as the Euro, FXE, rallied on news of the call for the EFSF Monetary Authority to be established.

All stock markets now have been reset for their 3-of-3 downs.  Get ready for investment, economic, and cultural “shock and awe”. Chaos and social hardships are coming.  

The fall of the Yen, FXY, commenced competitive currency deflation that is part of global debt deflation.

The coming 3-of-3-of-3 downs in stock markets, will be intense debt deflation.

Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “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.”

The fall of the Yen has turned off the only remaining spigot of investment liquidity; the other spigot of investment liquidity was the US Federal Reserve’s QE which ended for all practical purposes on March 31, 2010.

The Bank of Japan in selling Yen on September 15, 2010 was a pivotal day in investment history. Not only have the spigots of investment funding been turned off. But now, carry trade activity will now be operating in reverse to deleverage: the carry trades will be like black holes sucking in and destroying capital.

Now with the fall of the Yen, the Global Elliott Wave 3-of-3 Down Wave can get underway to destroy wealth world wide: serious downdrafts will be coming to all financial and bond markets globally. The chart of ACWI shows a close at 42.40. The chart of the S&P, SPY, shows a close at 113.05

Chart of ACWI

Chart of SPY


Thomas Jefferson said: “If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”

I personally am invested in gold bullion, $GOLD. But, I do provide a listing of ETFs and Stocks to sell short for a debt deflationary bear market for those interested in short selling. At the top of my list of stocks to sell short is Apple, AAPL and Tata Motors, TTM

Chart of Apple

Chart of Tata Motors

II … I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US, a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts.

This person will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing/Renting Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have created and serviced mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

And I envision that in Europe, a continuing fall in the EUR/JPY from 112, will result in further stock deflation, seen in the ETF, FEZ, falling below 36 and EUFN falling from 22. Then a liquidity crisis will emerge, where there will not be enough buyers for sellers of stocks as well as bonds, causing small business failures, and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone Credit Seignior” and provider of liquidity to Europe.

While many write that Ms Warren has been appointed as lapdog, I believe that Ms. Warren, is more likely to turn out to be the top dog, that is the Seignior, meaning top dog who takes a cut, and be called upon in time of crisis, to assume the role of Financial Regulator overseeing investment, banking, lending, credit, seigniorage and house leasing as her many articles would uniquely qualify her for such a role:  

Warren, Elizabeth & Jay Lawrence Westbrook. The Law of Debtors and Creditors: Text, Cases, and Problems (Aspen Publishers 6th ed. 2008).

Warren, Elizabeth. “Congress and the Credit Industry: More Bad News for Families” in Law and Class in America: Trends Since the Cold War 279 (New York University Press, 2006).

Warren, Elizabeth et al. “Mortgage Debt, Bankruptcy and the Sustainability of Homeownership” in Credit Markets for the Poor (Howard Rosenthal ed., Russell Sage, 2003).

Warren, Elizabeth et al. “Who Uses Chapter 13?” in Consumer Bankruptcy in Global Perspective 269 (Ian Ramsay ed., Oxford: Hart Publishing, 2003).

Warren, Elizabeth. “Evaluate the Present and Shape the Future” in The Development of Bankruptcy & Reorganization Law in the Courts of the Second Circuit of the United States (Mathew Bender, 1995).

Warren, Elizabeth. “Natural Disasters and Bankruptcy,” 3 Federal Reserve Bank: Communities & Banking (2005).

Warren, Elizabeth & Jay Lawrence Westbrook. “Class Actions for Post-Petition Wrongs: National Relief against National Creditors,” American Bankruptcy Institute Journal, March 2003,

Warren, Elizabeth. “Why Have a Federal Bankruptcy System?” 77 Cornell Law Review 2401 (1992).

Warren, Elizabeth. “Foreclosure Crisis: Working Toward a Solution: March Oversight Report” (2009).

III … In the news

OpenEurope reported September 15, 2010:

1) European Commission unveils proposals for regulation of derivatives and short-selling

EU Commissioner for Internal Market Michel Barnier will today present his proposals for regulation of derivatives and short-selling. EurActiv reports that under the proposed measures, so-called “over-the-counter” (OTC) derivatives would have to be traded via stock exchanges and processed by clearing houses or central counterparties, with a key role in the supervision of contracts for the new European Securities and Markets Authority.

As regards short-selling, the WSJ reports that the new rules would – if adopted – force investors to disclose “short” positions to regulators. Il Sole 24 Ore notes that bans on short-selling imposed by national regulators would be coordinated by the European Securities and Markets Authority, which will also have the power to limit or ban short-selling on its own initiative in “emergency situations”.

Barnier’s proposals will now have to be endorsed by the Council of Ministers and the European Parliament. If the timetable is respected, the new rules on short-selling and Credit Default Swaps (CDS) will enter into force in July 2012, followed by the new rules on derivatives six months later.
EurActiv WSJ BBC Il Sole 24 Ore La Repubblica

2) German government losing patience with Van Rompuy’s lack of progress with economic governance; Commission to propose fines for member states which fail to boost their competiveness

EUobserver notes that the German government has spoken out at the lack of progress by Council President Herman Van Rompuy’s taskforce on economic government. Deputy German Foreign Minister Werner Hoyer is quoted saying, “This dossier is too important to be treated on the basis of nebulous texts.” Germany backs the idea of a suspension of voting rights in the Council for states that break budget rules, which is likely to require treaty change.

In an interview with the FT, French Finance Minister Christine Lagarde has said that the eurozone’s drive for new fiscal rules and sanctions has run into “very difficult” legal obstacles and political objections from non-eurozone members in Eastern Europe. She said that, although there is scope under existing treaty provisions for the 16 eurozone members to draw up their own procedures, “We have the other 10 members saying: ‘Why should you exclude me? Why am I not part of the club?'”. She added, “The whole question of sanctions, the timing and pattern of sanctions, is at stake here.”

Meanwhile, Handelsblatt reports that the European Commission will separately table a proposal on 29 September, which would see fines imposed on member states which fail to pursue reforms to boost their economic competitiveness. Such reforms could include measures to counter balance of payments deficits or excessive wage costs. Italy, France and Poland also have reservations about stronger sanctions.

Handelsblatt Handelsblatt2 FT EurActiv EUobserver Irish Times Il Sole 24 Ore Il Sole 24 Ore 2

OpenEurope reported September 16, 2010 :

1)  Euro “A Bad Thing”, For The Economy Say Majority Of French, Germans and Spaniards

EUobserver reports that a fresh survey, conducted by the German Marshall Fund of the United States, has shown that 60 percent of the French, and more than half of German, Spanish and Portuguese respondents said that the euro was “a bad thing for their economy”. Outside the eurozone, 83 percent of the British, 53 percent of Poles and 42 percent of Bulgarians thought that using the euro would be bad for the domestic economy. The only exception was Romania, where 54 percent of respondents are in favour of the common currency.

Only in Germany did the majority of respondents (54 percent) agree that the European Union should have the primary responsibility for economic decision-making in tackling the economic crisis. This option was the least popular in the United Kingdom (25 percent) and in new member states Bulgaria (24 percent), Slovakia (22 percent), and Romania (15 percent). The French were divided on the issue. The article notes that the results sharply contradict a recent European Commission survey that Brussels interpreted as saying that European citizens are in favour of “European economic governance”.

Meanwhile, the poll found that 20% of Turks believed their primary partners should be Middle East countries, while 13% favoured the EU. Compared with last year, that almost halved support for the EU while doubling the figure for engagement with the Middle East.

German Marshall Fund poll EUobserver NRC Le Monde Guardian EUobserver blogs: Persson

2) Germany Wants Complete European Economic Governance

The FT reports that the European Central Bank Executive Board Member Lorenzo Bini Smaghi said some of the Commission’s powers over competition policy should “also be applied” to police member states’ economic and financial policies.

EurActiv reports that Germany is still pushing for a possible treaty change to strengthen the Stability and Growth Pact, calling for the suspension of member states’ voting rights if they break the rules. “Germany thinks that it is important to make progress on extending the scope of possible sanctions within the Stability and Growth Pact,” a diplomat added. “In our view, this is something that is still on the agenda and should be elaborated.”

Belgian Radio 1 quotes European Council President Herman Van Rompuy saying, “If the euro had failed, there wouldn’t be an EU any more.”

EurActiv Radio 1 FT FT 2 WSJ FT 3 Irish Times AFP

3) Barnier: New rules on derivatives and short-selling will put an end to “Wild West” speculation … Lord Turner: It is “vitally important” that new EU watchdogs do not get involved in day-to-day supervision  

It is widely reported that EU Commissioner for Internal Market Michel Barnier yesterday unveiled new proposals for regulation of over-the-counter (OTC) derivatives and short-selling, due to enter into force by the end of 2012, with a key role for the European Securities and Markets Authority (ESMA) in directly banning certain activity if it is perceived to threaten the financial system. “No financial market can afford to remain a Wild West territory. The absence of any regulatory framework for OTC derivatives contributed to the financial crisis and the tremendous consequences”, Barnier said yesterday during a press conference.

The proposals have already attracted criticism, especially with regard to temporary bans on Credit Default Swaps (CDS) and naked short-selling. Andrew Baker of the Alternative Investment Management Association (AIMA) is quoted in the Telegraph saying: “We do hope however that new powers to ban short selling are never used. Such bans have never worked, and indeed all the evidence is that the shorting bans during the crisis made the situation even worse”.

Meanwhile, Reuters reports that yesterday FSA Chairman Lord Adair Turner said that it is “vitally important” that the three new EU financial watchdogs do not get involved in day-to-day supervision of financial institutions, adding: “We are clear that the fundamental process of supervision has to occur where expertise is, with the national authorities”. However, the Commission’s proposal on derivatives appears to be giving ESMA day-to-day supervisory powers over clearing and trade repositories.

WSJ IHT Guardian FT FT 2 Telegraph Mail City AM City AM: Sidwell Handelsblatt RTBF El Pais Irish Independent Irish Times BBC EUobserver European Voice Reuters Open Europe research Open Europe press release

Yen Falls Dramatically To Its 50 Day Moving Average On Bank Of Japan Intervention

September 15, 2010

Financial Market Report for September 15, 2010

The Nikkei 225, ^N225, for the last ninety days, has had a strong deflationary wave structure falling from 10,238 on June 21, 2010 to today’s 9,510 today.

When using Yahoo Finance charting, and overlaying, the Semiconductors, XSD, and US Banking, KBE, the wave structures are similar to the Nikkei 225, that is, deflationary.

The Nikkei 225 is like semiconductors, something that has seen its prime and is quickly passing away. And the Nikkei 225, is ailing, like the US banks, the epitome of failed social experimentation. Although Japan has had a strong currency, its stock market, the Nikkei 225, has been leading the way down in a deflationary global economic collapse. A rising Yen has been decimating export driven Japan.

Investment has been flowing out of Japan down as is seen in the chart of ^N225, DNH, EWU, VTI, and EWD     

The Yen, FXY, had been rising from 105.44 on April 26, 2010; to yesterday’s September 14, 2010 high of 119.13, to trade today lower today, September 15, 2010 at 115.71 on Bank of Japan Intervention.

One reason for the strong ongoing rise of the Yen, is that it has been a cheap source of funding for carry trade investing, with many able to obtain 0.25% interest and below loans; and another reason for its rise is that some used it as a means of protecting their short positions, that is they called it higher, to keep the “short pressure” on the markets as a high yen is not conducive for going long the markets.

The Yen, FXY, has been “the juice” for going long a number of carry trade safe-haven investments, such as US Treasuries, up until September 1, 2010. Other destinations have been Tin, JJT, Food Commodities, FUD, the Brazil Small Caps, BRF (which are the opposite of the US Small Caps, the Russell 2000, IWM, which are encumbered, by poorly performing US Financials), the Frontier Emerging Market, FRN, Hong Kong, EWH, and the Emerging Market Small Cap Dividend, DGS, These have been the destination of investment capital ever since the EU Finance and State Leaders convened the Eurozone May 2010 Summit and announced European Economic Governance, seigniorage aid for Greece, and called for a Monetary Union with seigniorage authority to issue eurobonds. When the global economic downturn comes, which is likely to be very soon, perhaps tomorrow September 16, 2010, the United States will be the first to experience the downturn, as well as the swiftness of the downturn, leaving countries like Peru, EPU, to be last, to experience the severity of debt deflation. America is going to ground zero for hardship, dislocation and austerity.

Those owning Forex accounts and long yen carry trades, such as the AUD/JPY, seen in the chart of FXA:FXY, scored big. They checked their accounts to find they had literally blossomed as the Yen, FXY, was called lower. Those long had a windfall. I ask what would you do at this time? I know what I would do, I would take profits and go short AUD/JPY, which would create downward pressure on Australian shares, EWA, and  Copper Miners, CU. The capital inflow was greater in the AUDJPY than the EURJPY, so therefore, I expect the downward pressure on the Australian Shares to be greater than on the European Shares.

Likewise investors in the EUR/JPY, seen in the chart of the FXE:FXY, experienced a bonanza. I believe this places downward pressure on the European shares, FEZ, as well as country shares like Spain, EWP, and the European Financials, EUFN.  The same can be said of FXS:FXY, producing downward pressure on Sweden, EWD.

In many ways the US Dollar, $USD, is simply the 8 ball on the billiard table; its value is the sum of investors trading in other currencies.    

September 14, 2010, is peak Japanese Yen, FXY; just as August 31, was peak credit, that is peak bond, BND, value.   

Today’s fall of the Yen, FXY, to 50 day moving average to 115.60, gave a 2.4% boost up in the Nikkei 225.

Today’s rise in the Nikkei 225, ^N225, on a higher Yen, FXY, brings it into alignment with the World Shares, ACWI, and the S&P, SPY, “setting it” with the others for completion of an Elliott Wave 2 up, and “loading it into a Wave 3-of-3-of-3 down”.  Click on chart of ACWI to enlarge.


Today’s fall of the Yen marks a pivot point in yen carry trade investing; it’s continuing fall will underwrite a deflationary bias in investing long stocks; just as a flattening 30-10 US Government Bond Yield Curve will be a deflationary bias in investing long bonds. Yesterday, September 14, 2010 was peak investment liquidity.

The “approximate”, and I do emphasize approximate, Elliott Wave count on the ^N225 is:
Elliott 3 Down commenced April 7, 2010: 11,292
Elliott 3 of 3 Down commenced June 21, 2010, 10,238
Elliott 3 of 3 of 3 Down is ready to commence September 15, 2010, 9,501.

The Elliott Wave 3s are the most sweeping and dramatic of all waves. They are the ones that build wealth on the way up and destroy wealth on the way down. The coming down wave will for all practical purposes utterly and completely destroy fiat wealth. The only wealth that will abide is gold and perhaps silver. These are sovereign wealth. Yesterday’s rise in gold, $GOLD, and today’s fall in the Yen, FXY, knocks the Yen, out of competition with gold as the sovereign currency: gold is now the sovereign global currency and means of preserving wealth.

The fall of the Yen was most likely “coming”. Mike Mish Shedlock in article Currency Intervention Madness relates: “It has been proven time and time again that currency intervention does not work” …. Assuming Japan was going to have a “line of defense”, one near the 1995 is a spot (at 123) where there would be technical resistance anyway. If the Yen does drop in a sustained way, it will not be because of the intervention, but rather because the Yen had outrun fundamentals and was simply ready to drop”.

The fall of the Yen “had to be dramatic”; that is simply, “the way currency waves work”. A strong down was needed to boost the Nikkei 225, ^N225 up, resetting it for an Elliott Wave 3-of-3-of-3 to do its work. “This is the natural way of Elliott Waves”: there has to be a strong 2 up, as evidenced today September 15, 2010, so that the 3-of-3-of-3 down, can be the awesome thing that it is.  

All stock markets now have been reset for their 3-of-3-of-3 downs.  Get ready for investment, economic, and cultural “shock and awe”. Social hardships and even physical starvation are coming soon; yes countless many will experience physical starvation amidst the chaos that is coming.  

The fall of the Yen, FXY, commenced competitive currency deflation that is part of global debt deflation.

The coming 3-of-3-of-3 downs in stock markets, will be intense debt deflation.

Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “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.”

Global Debt Deflation commenced on April 26, 2010, when the value shares failed to outperform the growth shares.

It was on April 26, 2010, the currency traders went long the yen and short the global currencies as is seen in this MSN Finance chart of FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, XRU, FXY causing the US Dollar to rise; as can be seen in this chart from April 26, 2010 to June 7, 2010.

On June 7, 2010, the US Dollar, $USD, turned down as the Euro, FXE, rallied on news of the call for the EFSF Monetary Authority to be established.

Today’s fall of the Yen, FXY, commenced competitive currency deflation, that is part of global debt deflation. The fall of the Yen today has turned off the only remaining spigot of investment liquidity; the other spigot of investment liquidity was the US Federal Reserve’s QE which ended for all practical purposes on March 31, 2010.

September 15, 2010 is a pivotal day in investment history. Not only have the spigots of investment funding been turned off. But now, carry trade activity will now be operating in reverse to deleverage: the carry trades will be like black holes sucking in and destroying capital.

Now with the fall of the Yen, the Global Elliott Wave 3-of-3-of-3 Down Wave can get underway to destroy wealth world wide: serious downdrafts will be coming to all financial and bond markets globally.

I personally am invested in gold bullion, $GOLD. But, I do provide a listing of ETFs and Stocks to sell short for a debt deflationary bear market; one suggestion is now to go short JYN. I agree with Tyler Durden Zero Hedge article Goldman Joins BofA In Calling For Sub-79 USDJPY Over Next 6 Months Despite Intervention who wrote: “The near-term risks are still skewed towards marginal additional $/JPY strength. A test of historic record lows below 79 appears possible, in particular if option related activity has the potential to accelerate a down move, as we have seen in the past. But in reality we are likely quite close to the bottom of $/JPY.  Fundamental support for further Yen appreciation is fading as valuation starts to hurt trade flows, and rates differentials approach the lower bound. In this environment, the chances of “big splash” interventions eventually succeeding are quite high.Our forecasts remain 85 and 83 in 3 and 6 months, although we think a temporary move to marginal new lows is possible. Over a 12-month horizon, we maintain our “GSDEER reminder” and forecast $/JPY at 90.” Based upon those remarks, I recommend that one go short JYN as it will be falling from today’s value of 69. Mr Durden has additional thoughts on the USDJPY in article Banker Catfight: It’s On! … One may want to consider going short JYN:

One may want to consider going short YCL

The Yahoo Finance chart of the USD/JPY shows a big explosion up today from 83 to 85.5.

ForexBegin.Net relates: “Price level is testing 38.2% retracement, with further resistance at 86.30 and 89.00 area”.

Tyler Durden in Zero Hedge article FASB Proposes Semi-MTM Requirement, American Banker Association Goes All “Mutual Assured Destruction”:  “The FASB has just fired a semi-warning salvo at the banking system with a new proposed rule that would seek the gradual return of that long lost concept known as mark-to-market. However, while not going all the way and demanding that everything on the balance sheet flowed through the income statement’s bottom line, the FASB has decided to give banks the leeway of accounting for MTM adjustment in the bottom bottom line” ….. “The American Bankers Association released a statement that said the accounting change would present “significant problems, not only for banks, but also the general economy. If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.”  This new proposal is at odds with the previous FASB 157 announcement which entitled banks to mark assets at manager’s best estimate rather than mark them to market. So get ready for some real engagement between the FASB and the ABA.

There is a glut of oil coming to market. One may want to consider going short  ProShares Ultra DJ-AIG Crude Oil, UCO

Symbols:  AUD/JPY, USD/JPY, FASB 157, FASB Semi MTM, Nikkei 225, debt deflation, yen carry trade, carry trade investing, competitive currency deflation, FXY, GLD, UUP, JYN, UCO, YCL, XSD, EWA, CU, FEZ, ESP, EUFN, FXE

A Higher Yen Stalls US Stocks, But Moves Gold Higher ….. A Higher Euro And A Swedish Krona Sustain A Rally In The European And Asian Shares

September 14, 2010

Financial market report for September 14, 2010

Early in the day some currency traders went long the Yen, FXY, taking it above 119, causing disinvestment from Banks, KBE, and credit services, such as Nelnet, NNI ….. This sent the Russell 2000 Value, IWN, lower ….. Investors took a safe haven response in gold, GLD, which rose to trade above 124. The junior gold mining shares, GDXJ, rose 3.5% ….. Then other currency traders went long the Euro, FXE, sending European Shares, FEZ, European Financials, EUFN,  and Spain, EWP, higher ….. Best Buy reported a 60% rise in income which sent Retail, PMR, Small Cap Consumer Discretionary, XLYS, and Semiconductors, XSD higher …. The currency traders also went long the Australian Dollar, FXA, and investment flowed into copper miners, CU, and Australia, EWA … And they went long the Swedish Krona, FXS, causing Sweden, EWD, to rise … Asian shares, DNH, rose on the higher Euro, FXE, and the higher Australian Dollar, FXA … And they went long the Swiss Franc, FXF, which induced Switzerland, EWL, to close up to resistance.

With the spigots of currency liquidity and carry trade liquidity wide open, monies poured into Tin, JJT, Food Commodities, FUD, and the Brazil Small Caps, BRF.  The latter are the opposite of the US Small Caps, the Russell 2000, IWM, which are encumbered, by poorly performing US Financials. The Food Commodities, Brazil Small Caps, Switzerland, the Frontier Emerging Market, FRN, Hong Kong, EWH, and the Emerging Market Small Cap Dividend, DGS, have been the destination of investment capital ever since the EU Finance and State Leaders convened the Eurozone May 2010 Summit and announced European Economic Governance, seigniorage aid for Greece, and called for a Monetary Union with seigniorage authority to issue eurobonds. When the global economic downturn comes, which is likely to be very soon, perhaps tomorrow September 15, 2010, the United States will be the first to experience the downturn, as well as the swiftness of the downturn, leaving countries like Peru, EPU, to be last, to experience the severity of debt deflation. America is going to ground zero for hardship and austerity.

Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “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.”

Investment in the Euro, FXE, and the Yen, FXY, and emerging market currencies, CEW, sent the the US Dollar, $USD, and Dollar Bull ETF, UUP, strongly lower.

Needless to say, a higher Yen and lower US dollar continued to propel JYN higher.    

There are those who are short the market, and to protect their investment, are committed to buying the Yen, FXY.  They will purse a higher yen, until other carry trader investors relent, going long the Euro, FXE, and long the Swedish Krona, FXS, and the Australian Dollar, FXA, and the desired response of lower World Stocks, ACWI, and an S&P, SPY, is achieved. The chart of both, shows an Elliott Wave 2 up being completed; and an Elliott Wave 3-of-3-of-3 waiting to commence. Click on chart of ACWI to enlarge.  

I believe that the rise in the Euro, FXE, today, September 14, 2010, to 129.59 will commence a Wave 3 of 3 of 3 Down; with a prior Wave 3 Down on April, 15 2010 at 135.47; and a prior Wave 3 of 3 Down on August 6, 2010, at 132.45. There had to come a definite rise in the Euro for the ultimate Wave 3 Down to commence; I believe that rise came in today.

The strong Euro today carried Junk Bonds, JNK, to a new high.

The chart of the major carry trades show completion, suggesting that a stock market downturn is at hand.

Chart of the AUD/JPY … FXA:FXY

Chart of the EUR/JPY… FXE:FXY


Some say higher interest rates, such as a rising rate on the 30 Year US Government bond, $TYX, heralds the end of a recession. On the contrary, rising interest rates introduce a flattening yield curve which will intensify our entrance into the double dip recession and commence debt deflation of bonds. Chart shows the 30 10 US Government Debt Yield Curve, $TYX:$TNX, to be flattening. It will be a triad of a flattening yield curve, rising credit default swaps, and unwinding yen carry trades that will wipe out fiat assets. That is why I’ve chose to be invested in gold bullion, $GOLD.


The duration on investment grade corporate bonds has fallen from 6.56 years to 6.43 Years as Shannon D. Harrington and Tim Catts of Bloomberg report on September, 13, 2010: “The duration of U.S. investment-grade corporate bonds reached 6.56 years on Aug. 31, the highest since at least 1996, Bank of America Merrill Lynch index data show. The measure, which began the year at 6.2 years, has since fallen back to 6.43. “I would not be applying fresh capital to the long end of the yield curve,” said Chad Morganlander, a money manager at Stifel Nicolaus & Co., which oversees $90 billion. “Any sign of economic vitality, without government assistance, would be deleterious.” Morganlander, who’s based in Florham Park, New Jersey, said he’s buying investment-grade securities that mature in five years or less.  The chart of BLV shows “peak credit” came to the longer out high grade corporate bonds on August 26, 2010 at 87.25.

I relate that Fannie Mae has announced a policy of loss mitigation which imperils the Banking industry’s shadow inventory of homes and the squatters entitlement of payment free living.

IrvineRenter in article Government Expedites Foreclosures, Threatens Banking Cartel writes: “The end of the banking cartel is being signaled by coordinated efforts at a variety of governmental agencies to expedite the foreclosure liquidation.”

IrvineRenter references the John Prior REOInsider article FDIC sells another $760 million in REO which describes the FDIC’s Public Private Investment Partnership with Mariner Real Estate Management, MREM, a real estate investment and management firm based in Kansas.  MREM is part of Mariner Holdings, a $7 billion wealth and asset management company. The portfolio includes roughly 1,100 loans and properties from 20 banks the FDIC has taken into receivership. The properties are located across 24 states. Earlier in August, the FDIC sold a similar $1.7 billion portfolio to PMO Loan Acquisition Venture, a partnership of other investment firms.

IrvineRenter relates: “These guys are going to keep what cash-flows and liquidate the rest.” I state that the relationship that the FDIC has with asset management companies is one of state corporatism; capitalism is an economic way of life of a bygone era.

IrvineRenter continues: “One of the barriers to liquidation is the write downs required by “solvent” banks (we all know most of them are not solvent). A huge problem within the GSE portfolios is that the services of delinquent loans are intentionally delaying foreclosure when the parent bank holds the second mortgage.The GSEs are going to start charging servicers who fail to properly follow their loss mitigation procedures” as related in Al Yoon Reuters article Fannie Mae Gets Tougher On Mortgage Servicers: “A compensatory fee not only compensates Fannie Mae for damages but also emphasizes the importance placed on a particular aspect of a servicer’s performance,” Fannie Mae said in an announcement to servicers. “In some cases, a compensatory fee will relate to the action a servicer took, or failed to take, in handling a specific mortgage loan,” it said. Fees will be applied in various instances, including failure to provide access to records and delays on completing foreclosures and selling foreclosed properties.”

IrvineRenter states: “These comments are aimed directly at the practice of avoiding foreclosure on properties that have second mortgages on the servicers books. This is the primary reason a service fails to foreclose and dispose in a timely manner.

The Reuters article continues: “More aggressive action by mortgage servicers could help ease burdens on Fannie Mae, whose losses on loans it guarantees or owns forced it into regulator’s hands in September 2008. It has required some $86 billion in taxpayer funds since then. Fannie Mae, which uses hundreds of servicers, did not specify any that might have prompted the announcement but has identified rising stress at the firms. A spokeswoman declined to comment beyond the announcement. “The growth in the number of delinquent loans on their books of business may negatively affect the ability of these counterparties to continue to meet their obligations to us in the future,” Fannie Mae said in its quarterly filing with the Securities and Exchange Commission last month.”

IrvineRenter relates: “If the GSEs are not forced to back down from this policy due to pressure from lenders, this change in policy and incentives will signal the end of the banking cartel because this will push product on the market whether or not the market is capable of absorbing it. That will push prices down.“

My belief is that the GSE loss mitigation policy will push prices down and extinguish bank capital as short selling and credit default swaps will quickly and progressively pressure the capital of banks downward, because they have a legitimate claim that the banks will now be taking losses on foreclosed properties that are pushed out of shadow inventory. The GSE announced policy of loss mitigation and loan management is the antithesis of FASB 157; it will effectively extinguish banks and transform them into property leasing organizations. Furthermore in addition falling bank, KBE, prices, and I expect PowerShares Real Estate, PSR, and Residential Real Estate, REZ, to fall. It’s the opportune time to sell them short as well as ProShares Ultra Real Estate, URE, and Direxion, DRN,

The GSEs loss mitigation policy announcement, documents that we have passed from the age of entitlement to mark property at manager’s best estimate, to the age of administrative announcement where property is marked at market. And, we have passed from the age of entitlement to living payment free, to the age of austerity.

In this new age of Government Administration, Government Administrators, that is Government Ministers, announce economic, banking, lending, housing, and investment policy; and the people and businesses follow …. “there is the new matrix” … “we ain’t in Kansas no more”.

Volatility is oversold, it is soon going to be time to go long, VXX.

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