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.
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.