Archive for October, 2010
Ambrose Evans Pritchard writes Eurozone sovereign states must issue €915bn in new bonds next year, according the UBS, either to roll over debt or to cover very big deficits – though it is hard to outdo Ireland’s deficit of 32pc of GDP in 2009. Yet investors have just been told in blunt terms to charge a hefty risk premium on any peripheral debt that expires after 2013, with great confusion over what happens even before that date. Can any investor be sure what the terms will be if Ireland or Portugal needs to access the EU’s bail-out fund next week, or next month, or next year? Are haircuts already de rigueur?
A study by Giada Giani at Citigroup entitled “Bondholders Moving Back Home” said data from the second quarter reveals a sharp drop in foreign ownership of debt from Greece (-14pc), Portugal (-12pc), Spain (-8pc), and Ireland (-5pc).
Local banks have stepped into the breach, borrowing cheaply from the ECB to buy their own state debt at higher yields in a `carry trade’ that concentrates risk. These four countries account for the lion’s share of the €448bn in ECB funding for banks (Spain €98bn, Greece €94bn). Frankfurt is propping up this unstable edifice. Mr Trichet may well fret.
A strong case can be made that Spain has decoupled from other PIGS in pain, though the deficit will still be 6pc next year, and the economy is at serious risk of a double-dip recession as wage cuts and higher taxes bite in earnest. But none are safe yet.
An ominous pattern has emerged across much of the eurozone periphery: tax revenue keeps falling short of what was hoped. Austerity measures are eating deeper into the economy than expected, forcing further fiscal cuts. It goes too far to call this a self-feeding spiral, but such policies test political patience to snapping point.
There is little that these nations can in the short-run as EMU members. They cannot offset fiscal tightening with full monetary stimulus or a weaker exchange rate – as Britain can. All they do can is soldier on, sell family silver to the Chinese and Gulf Arabs, beg the ECB to join the currency war to bring down the euro, and pray that the fragile global recover does not sputter out.
Chancellor Merkel is ultimately correct. A mechanism for sovereign defaults is entirely healthy. Had it been in place long ago, EMU would have been stronger. The proper timing for this was at the Maastricht Treaty, or Amsterdam, or at the latest Nice, but in those days the EU elites were still arrogantly dismissive about the implications of a currency union. To wait until now borders on careless.
Eurozone countries are facing growing sovereign det interest rate oppression as is communicated in the chart of World Sovereign Debt, BWX, falling lower. This increases the likelihood of a series of failed Treasury Auctions and a liquidity evaporation in the stocks and bond market and dramatically increases systemic risk and the likelihood of ever greater austerity measures.
Casey Research relates JPMorgan, HSBC Sued For Alleged Silver Conspiracy
Kitco relates a The Real Life Scary Movie 5: The Undead Fed
The world is moving quickly towards the 666 Credit System presented in Bible prophecy in the Book of Revelation.
A bear market has been underway since October 15, when world stocks, ACWI, fell as the Interest Rate on the 30 Year US Government Bonds, $TYX, rose to 4%, which caused emerging markets currencies, CEW, and developed market currencies, DBV, to fall lower.
The Yen, FXY, rose strongly in value on October, 29, 2010, dislocating yen carry trades; this will cause a great unwinding of stocks globally: fiat wealth will be totally destroyed by falling currency value.
Global debt deflation commenced October 15, 2010. 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.”
I believe that a Global Seignior, that is a top dog banker who takes a cut, will institute unified regulation of banking globally, as referred to, in the James Politi and Gillian Tett Financial Times article, NY Fed Chief In Push For Global Bank Framework, and that the Seignior will oversee all matters of debt and credit, and implement a global currency system.
Bible prophecy reveals that the Beast System of Revelation 13:1-4, will arise to rule mankind.
In addition to foretelling of a beast system, the bible heralds the Sovereign, rising to rule mankind, Revelation 13:5-10.
The world leader will be complemented by the Seignior, Revelation 13:11-18, meaning top dog banker who takes a cut.
He is a also a Spiritual Leader with a unifying Global Vision. Eventually he will direct the 666 credit system, Revelation 13:17-18, where one will be given the charagma, or mark, necessary to conduct commercial activity.
Those interested can read more in article Beast System, Sovereign, and Seignior to rule mankind.
Keywords: globalcurrencysystem, unifiedregulationofbankingglobally, unifiedregulation.
Financial market report for October 29, 2010
I … The most credit laden and currency driven ETFs surged in front of the QE 2 announcement — It was the day of the living dead, as the zombie ETFs rose to new life in anticipation of the announcement of Federal Reserve Easing. Yes, dead things came alive.
Chinese Real Estate, HAO, being highly speculative rose 1.8%
The Small Cap Pure Growth Share, RZG, rose 1.3%
The Mid Cap Growth, JKH, rose 0.7%
Gaming, BJK, the very definition of speculation rose 1.1%
Small Cap Consumer Discretionary, XLYS, one of the most economic volatile shares, rose 1.1%.
Spain, EWP, loaded with poorly performing mortgages and bank debt, rose, 1.0%
Copper miners, COPX, being carry trade driven, rose 1.0%
Hot commodities including Sugar, SSG, Coffee, JO, Softs, And Cotton, BAL, as seen in the chart of SSG, JO, JJS, BAL surged. Hedge School of Applied Economics relates “Near-zero interest rates in the U.S. and Japan are boosting the allure of higher-yielding assets, spurring inflation and heightening the risk of asset bubbles in developing nations, according to China International Capital Corp. … “The yield curve is steepening and has room to become steeper as expectations for inflation have risen,” said Xu Xiaoqing, head of fixed-income research at CICC, the nation’s first Sino-foreign joint investment bank.”
Poland, EPOL, Peru, EPU, Chile, ECH, and Thailand, THD, which have been the yen carry trade destination hot spots for the current Milton Friedman inspired floating currency regime, as seen in the chart of EPOL, EPU, ECH, THD, and which epitomize the age of yen carry trade, investing surged. Poland, EPOL, soared 1.7%.
Sweden, EWD, shares rose 0.45%; they are very much currency driven shares.
PowerShares Listed Private Equity, PSP, Junk Bonds, JNK, and Mortgage Backed Bonds, MBB, Blackrock, BX, which epitomize the age of credit liquidity, that has come from quantative easing by the US Federal Reserve, all surged. Private Equity, PSP, rose to a rally high. It features the debt that has cove via leveraged buy-outs, that is LBOs, whose original financing came from 0.25% Bank of Japan carry trade loans.
The red hot agricultural Industry, MOO, surged 1.6%.
Dow Internet, FDN, rose 0.7% to a new rally high.
Four Diversified Utilities have soared since QE 1; these are Centerpoint Energy, CNP, Westar Energy, WR, Wisconsin Energy, WEC, and North East Utilities, NU, as seen in the chart of CNP, WR,WEC,NU; today they rose as follows CNP 1.0%, WR, 0.1%, WEC, -.3% and NU, 0.3%. These should be in a short sellers portfolio as when they fall, they fall fast and hard.
II … The most deflationary ETFs fell in front of QE 2.
The Baltic Dry Index, $BDI, fell 1.1%
Mortgage Finance, KME, fell 3.5%.
Solar Energy, TAN, fell 3.2%
Tin, JJT, fell 2.2%.
West Texas Intermediate Crude, $WTIC, fell 0.9%
Japan Small Companies, JSC, which had fallen 2.5% this week, traded unchanged. The 200% inverse Japan mutual fund UKPSX rose 5% this week; both of which can be seen in this BloombergFinance comparison chart. Jonathan Burgos of Bloomberg reports Asian stocks decline as Sharp, Samsung Electronics stoke earnings concern. Mayumi Otsuma and Aki Ito of Bloomberg report Japan Output Slide, Deepening Deflation Point to Economic Slump
III … A bear market in both equities and bonds commenced October 15, 2010 and was confirmed October 27, 2010 by a sell off of the Emerging Market Currencies.
Both the spigot of investment liquidity coming from the EUR/JPY, and the spigot of liquidity coming from US Government Debt expansion are being turned off; and will in fact act in reverse to unwind carry trade investment and cause debt deflation in both stocks and bonds. The chart of the small cap pure value shares, RZV, relative to the small cap pur growth shares, RZG, RZV:RZG, communicates that debt deflation has indeed been underway since October 15, 2010.
IV … Tyler Durden of ZeroHedge reports Today’s CFTC Commitment of Trader data confirms that the dollar strengthening trend from last week continues. Whether this was merely momentum chasing or an expectation of a less efficient QE2 can be answered by looking at select commodity positions. A quick glance at wheat, soybeans, coffee, corn and oats shows that pretty much all 5 representative commodities saw their net long spec positions increase again. So QE2 is definitely going to manifest itself in more inflation, or so at least claim the speculators.
V … In today’s news
The Associated Press reports Tribune Co. Creditors Sue Banks Behind 2007 Buyout: A group of Tribune Co. creditors filed a lawsuit Friday alleging the media company’s nearly two-year stint in bankruptcy protection might have been averted if not for the greed of big banks who saddled the business with more debt than it could afford to repay.
Scott Schaefer of he B-Town (Burien) Blog reports Ownership of Burien Town Square Returns To ST Residential. And of note, the original developer, Urban Properties, will be retained to manage the property.
The Seattle PI reports It’s The Weekend Of The living Dead As Zombie Convention Comes To Seattle
Eric Bellman and Arlene Chang of the Wall Street Journal report Microlending Crisis Emerges In India. The microlending movement that was supposed to help lift millions of people in India out of poverty has in recent weeks fallen into chaos. Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.
Jim Willie CB in GoldSeek writes of Imminent Big Bank Death Spiral
William H. Gross, Managing Director, PIMCO writes in Investment Outlook article Run Turkey Run paints a most alluring picture of QE2: You may not be strutting around the barnyard as briskly as you used to – those near 10% annualized yields in stocks and bonds are a thing of the past – but you’re gonna be around next year, and then the next, and the next. Interest rates may be rock bottom, but there are other ways – what we call “safe spread” ways –to beat the axe without taking a lot of risk: developing/emerging market debt with higher yields and non-dollar denominations is one way; high quality global corporate bonds are another. Even U.S. Agency mortgages yielding 200 basis points more than those 1% Treasuries, qualify as “safe spreads.” While our “safe spread” terminology offers no guarantees, it is designed to let you sleep at night with less interest rate volatility. The Fed wants to buy, so come on, Ben Bernanke, show us your best and perhaps last moves on Wednesday next. You are doing what you have to do, and it may or may not work. But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment. If a country gets the politicians it deserves, then the same can be said of an investor – you’re gonna get what you deserve. Vote No to Republican and Democratic turkeys on Tuesday and Yes to PIMCO on Wednesday. We hope to be your global investment authority for a new era of “SAFE spread” with lower interest rate duration and price risk, and still reasonably high potential returns. For us, and hopefully you, Turkey Day may have to be postponed indefinitely.
Tyler Durden questions Will The $426 Billion “Second Lien Monster” Require A New Marshall Plan For Housing?
Mike Schneider and Tamarah Lush of the Assoicated Press write in SignOnSanDiego Signatures Were Faked At Foreclosure Firm, Witnesses Say. An office manager at a Florida law firm under investigation for fabricating foreclosure documents would sign her name to 1,000 files a day without reviewing them and would allow paralegals to sign her name for her when she got tired, her former secretary said in a deposition released Monday. Cheryl Salmon, office manager for the foreclosure department at the law offices of David Stern , would sign 500 files in the morning and another 500 files in the afternoon without reviewing them and with no witnesses, said former assistant Kelly Scott in a deposition released by the Florida attorney general’s office. The files were laid out on a conference room table for Salmons to sign, the former secretary said. “She doesn’t review them. She just looks,” Scott said. “The paper is going to be in the top folder so it’s visible to her, and she knows exactly where she has to put her signature.” Paralegals would then collect the files and swap them with each other, signing them as witnesses even though they had already been notarized and executed, Scott said. Salmons allowed some paralegals to sign her name for her, said the former assistant, who worked at the firm for a year in 2008.
Brandy Dennis of the Washington Post relates Florida Community Feels Ripple Effects As Paperwork Issues Stall Foreclosures that in Fort Myers, FL, the yellow stucco house at 1813 Oakley Ave. has blooming bougainvillea out front, a spacious yard out back and a buyer named Emilio Mamuyac who’s smitten with the place and ready to move in. But he can’t. Since early last month, the sale has been postponed three times as the mortgage finance giant Fannie Mae, which seized the home from a delinquent borrower, has faced concerns about whether the foreclosure was properly carried out. And as this deal and others like it languish, the effects are rippling across this community on Florida’s west coast. Mamuyac has to continue paying rent for an apartment six miles down the road. Mamuyac’s real estate agent hasn’t been able to pocket his commission, nor has the seller’s agent. Another home inspector loses out on work.
Fred Schulte and Ben Protess of the Huffington Post writes of The New Tax Man – Big Banks And Hedge Funds. Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay. The Wall Street investors, which include Bank of America and JPMorgan Chase & Co., have purchased from local governments the right to collect delinquent taxes on several hundred thousand properties, many in distressed housing markets, the Huffington Post Investigative Fund has found. In many cases, the banks and hedge funds created new companies to do their bidding. They gave the companies obscure, even whimsical names and used post office boxes as their addresses, masking Wall Street’s dominant new role as a surrogate tax collector. In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.
Joe Weisenthal writes in Business Insider: Forget The Foreclosures, Here’s The Simple Thing That Is Crushing The Banks. A JPMorgan analyst suggests that the current maelstrom surrounding banks could cost the industry somewhere between $50-$120 billion, but arguably the fears here are being overblown. But there is a clear threat that is very easy to see: the economy is weak and banks don’t have the business volume to make a lot of money. As credit specialist David Goldman observers, banks are still plowing more and more money into government securities — the opposite of real banking activity. What should worry investors, rather, is the simple question: how can the banks make money when no-one wants to borrow and asset returns are imploding? The absence of viable investment opportunities for the banks is illustrated most poignantly by one data point, namely banks’ accelerating purchases of Treasuries. Bank purchases of Treasuries, spiked upward during the past several weeks just as the yield curve flattened and Treasury, TLT, returns collapsed. It was one thing for banks to borrow at next to nothing and buy 2-year notes, SHY, at 1%. The trade doesn’t make sense now. It is risky for banks to go far out the yield curve, but they seem to be doing so.” I comment, yes up until the Interest Rate on the 30 Year US Government Bond, $TYX, started rising on October 14, 2010, it was safe to ride the steepening 30 10 US Government Bond yield curve, $TYX:$TNX. But now, the rising 30 Year rate and the steep yield curve, are rapidly destroying the longer out maturity bonds, TLT and Zeroes, ZROZ.
In Australia, they are drinking the home owner debt coolaid as Bridget Carter write in News.Com.Au Don’t Expect Property Crash Anytime Soon. I relate that in Australia, it is evident from the comments, that they are drinking the home owner debt coolaid … “From watching (the market) for many years, I think it is an ever-growing market in Sydney,” one said … “In Bondi, I don’t think you are ever going to lose money, Bondi prices are astronomical,” another related … “Perth, Sydney, Adelaide to see 20 pc rises”, another chimes in.
I hope the lenders have not gone all the way, as in Canada and have offered interest only loans.
The Australian Dollar, FXA, has been on a roller coaster ride. It rose via yen carry trade investing to 90 in June 2008, then as metal prices, JJM, fell, and carry trades unwound in commodities, DBC, in general, the Australian Dollar, fell to 60. And then Australia, EWA, the Australian Small Caps, KROO, and the emerging markets, EEM, became yen carry trade investment hot spots, and the Australian Dollar, FXA, rose to 99.58 on October 14, 2010. But it and major world currencies, DBV, and emerging market currencies, CEW, turned down as currency vigilantes and bond vigilantes called the Interest Rate on the US 30 Year Government Bond, $TYX, higher.
And the vigilantes are now calling the interest rate on all the Worlds Government Bonds, BWX, higher. This is going to continue due to risk aversion, along with unwinding Yen carry crosses, to cause debt deflation, that is bond and stock and housing price deflation globally.
And in fact it started already this week as is seen in the Japanese small companies, JSC, and Japanese shares, EWJ, and the Nikkei 225, ^N225, falling in price. Yes all currencies, such as those shown in this Finviz Screener of FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB, BZF, XRU, FXY, BNZ, DBV, CEW will be going lower as the currency traders call out competitive currency devaluation, that is competitive currency deflation.
MSN Finance chart of the currencies shows the relative strength of the Australian Dollar since June 2006: it has been the top performing currency. But how fast it will fall, will depend largely on tax policies in Australia, and whether Australia is able to negotiate resource contracts with the ASEAN countries. The strength of the Australian Dollar, FXA, is dependent upon the currency traders willingness to support the Australian Dollar Carry Trade, FXA:FXY.
The evidence is clear, cogent and convincing that a bear market commenced October 14, 2010 as world shares, ACWI, fell lower as emerging market currencies, CEW, and developed market currencies, DBV, turned lower on conviction that the US Federal Reserve’s QE 2 monetizes debt. The chart of world shares, ACWI, shows the lollipop hanging man candlestick, at the top of an ascending wedge, giving bearish salute to the stock market rally that commenced in early June with the rise of the Euro, FXE, as the EFSF monetary authority was announced. All I can say is get ready for investment shock and awe. And the housing prices in Australia are definitely topping out, they will not be higher a year from now.
R. Venkataraman, Executive Director, India Infoline Group writes: Unreal Estate…Manic Buying Before A Likely Panic Collapse. ”Buyers of such real estate projects have now become investors or rather traders. They are paying 10% upfront and buying a call option. If prices collapse, they will have to simply write-off the 10% they invested. We have heard enough that derivatives are weapons of mass destruction. These weapons appear to have entered the real estate now. Is it a prelude to a crash?”
Yes, it is the prelude to a crash. The 10:90 financing he relates is a scheme that leaves the banks such as ICICI Bank and HDFC, on the hook for having to pay the builders to complete projects that cannot be sold when the buyers pull out as the world stock market, ACWI, continues its downturn from October 14, 2010, as the interest rate on the US 30 Year Government bond, $TYX, turns higher from 4% on awareness that the US Federal Reserve’s QE2 is monetization of debt; and as currency traders call the major world currencies, DBV, and the emerging market currencies, CEW, and the Indian Rupe, ICN, lower, on risk aversion. The Rupe topped out at 26.89 on October 15, 2010. I add that India Earning, EPI, has already turned down, as has India, INP, and INDL, as has Tata Motors, TTM. from its 28.95 high.
Risk Aversion is indeed rising as Pater Tenebrarum in Credit Watch October 29, 2010 article reports of Renewed Trouble for Greece, Portugal and Ireland – Irish Bonds become ‘Confetti in the Winds’. And also, Simon Clark and John Glover of Bloomberg relate Bondholder ‘Immunity’ to Losses Challenged as Irish Bail Banks: Two years after assuring senior bondholders that they wouldn’t lose their money if banks failed, the Irish government is making the same promise again. This time, some bondholders are skeptical the government will bail them out with taxpayer funds, sending down the price of senior guaranteed debt for Anglo Irish Bank Corp. to 90 cents on the euro, according to pricing data compiled by Bloomberg, to account for the risk it might not be repaid in full. Some equity investors, including Neil Dwane, who helps oversee about $80 billion of equities as chief investment officer at Allianz Global Investors’ RCM unit in Frankfurt, are angry the pledge is being made at all. “It’s as if bondholders have diplomatic immunity from losses,” Dwane said. “Two years into this crisis we’ve learned nothing and done nothing. Bondholders have got to understand that they can lose money when they invest in banks.”
Karen Weise writes in ProPublica: Mortgage Investors Join Outcry Against Banks And Mortgage Servicers
Niki Kitsantonis of the New York Times writes: A World Upside Down for Greeks: Giorgos Sofronas, 66, has run a small shop selling ladies’ bags in central Athens for more than four decades. This year, all of a sudden, the future became uncertain. Mr. Sofronas has seen his sales drop by 45 percent since the onset of an unprecedented debt crisis earlier this year that prompted the Greek government to increase taxes and cut public salaries, in return for a €110 billion, or $154 billion, rescue package from its euro-zone partners and the International Monetary Fund, IMF. The measures have sliced profit margins at businesses large and small and damped consumer demand. Watching shops closing one after another on his street has made Mr. Sofronas nervous, but he will not contemplate bankruptcy. “This business feeds nine people,” he said, referring to his family and five employees. “I can’t give up.” In Greece, small businesses, defined as stores or workshops employing fewer than 10 people, though many are one-person operations, account for 96 percent of all enterprises and employ around two million of Greece’s five million-strong work force. Many small businesses, particularly in Athens and on Greece’s many islands, support the tourism sector, a crucial part of the economy that is also reeling from the repercussions of the debt crisis.
Clear Capital reports Sudden and Dramatic Drop in U.S. Home Prices and is issuing this special alert on a dramatic change observed in U.S. home prices: “Clear Capital’s latest data shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.” This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.
Susanne Walker of Bloomberg reports U.S. Yield Curve Widens to Steepest Since September on Fed View. This can be seen in the chart of the US Sovereign Debt 30 10 Yield Curve $TYX:$TNX. It has been the anticipation of QE 2 that took the yield curve up to 1.575 on October 14, 18 and 19. The 10 to 20 Year US Government Treasuries, TLT, turned down in late September and late October as the yield curve struck 1.475.
I believe the 30 10 Yield Curve will continue to steepen not flatten as the currency vigilantes and bond vigilantes call the Interest Rate on the 30 Year US Government Bond, $TYX, ever higher.
Those invested in mortgage-backed bond, MBB, and Junk Bonds, JNK, have benefited from the rising anticipation of QE II, and from strong yen carry crosses such as the EUR/JPY, FXE:FXY. Other yen carry crosses include the Canadian Dollar Yen, FXC:FXY, the Brazilian Real Yen, BZF:FXY, the Mexico Peso Yen, FXM:FXY, the Swedish Krona Yen, FXS:FXY, and the Emerging Currencies Yen, CEW:FXY.
Yet there is an end to all things, including investing long yen based carry trades. This is seen in emerging market bonds, EMB, turning lower as its chart shows a massive dark cloud covering candlestick at the top of an ascending wedge. The chart of the emerging market small cap dividends, DGS, shows likewise on October 25, 2010.
When carry trade investing in commodities, DBC, burned out, the astute and well-connected to the Bank of Japan’s 0.25% interest carry trade funding saw that QE 1, that is the Federal Reserve’s TARP program of trading out US Treasuries for mortgage-backed bonds, MBB, and distressed investments, like those in the Fidelity mutual fund FAGIX, would re-inflate assets globally, they chose at that time to invest in the emerging markets, EEM, EET, and the frontier markets, FRN, far, far, far away from Wall Street Banks, KBE, Bank of America, BAC, US Community Banks, QABA, Spain, EWP, Ireland, EIRL, and the European Financials, EUFN. And many sought safe shelter in Hong Kong, EWH, Singapore, EWS and Asia High Yielding Stocks, DNH.
It has been carry trade investing that has funded energy services, OIH, and made it to be one of the better investments from 2003 through mid 2008 as it rose from 45 to 200. But like I communicate, the sub prime bust and the oil, $WTIC, UCO, and USO, bust, carry traders found greater reward in the emerging market with investments like Credicorp, BAP.
I find it interesting that Ben Bernanke has been successful in inflating the value of mortgage backed bonds, MBB, to their closing value of 109.73, without turmoil and upset.
The mortgage backed bonds, MBB, has increased in price from 87 March 2007 to present its present November 2010 price of 109.71.
From the MSN Finance Chart of Mortgage Backed Bonds, MBB, compared to the too big to fail banks, RWW, and the banks, KBE, the 10-20 Year US Treasuries, TLT, and the distressded securities, FAGIX, one can conclude from Ben Bernanke’s view that TARP was an outstanding success as it helped stabilize the mortgage-backed securities, and as it inflated the too-big-to-fail, RWW, market value. Also, the Banks, KBE, even though losing 60% of their value are still in operation, and the distressed secrities, that resided at the banks, FAGIX, were run up from a 40% loss to a 10% gain as QE 1’s TARP one came and Q2 was assumed to be forth coming … MBB, TLT, KBE, and FAGIX
The too big to fail banks, RWW, with the assistance of the SEC and the AICPA coming through with FASB 157, enanbled the banks to mark assets at the manager’s best estimate rather than to market. And through the housing finance cartel overlords, Freddie Mac and Fannie Mae, the banks have been able to withhold property form going to market, thus further protecting the banks book value so the banks stay in business and the bankers have good take home pay.
Most importantly of all, Ben Bernanke’s TARP has been the shield for the mortgage backed securities maintaing their value.
And Ben Bernanke’s TARP program has been a critical stepping stone to establishing future global governance in the North American Continent. He socialized the banks losses to the taxpaying public and people of American, and privatized the profits of banking to the TARP recipients. He committed a coup de etat integrating banking with the Government, that is he established state corporate rule over banking. TARP was the precursor of the Dodd Frank legislation which established the authority of a Financial Regulator in the office of the Secretary of the US Treasury.
This is contrasted with five months of wrangling on the part of European heads of states and the European Finance Ministers and finally deciding to assign Herman van Rompuy, the task of preparing the legalities and procedures for effecting a European nation’s sovereign debt default.
The world governments are loosing their seigniorage, as is seen in the Interest Rate on the US Ten Year Note, $TYX, being called higher to 4.0% by the currency vigilante and the bond vigilantes calling world bonds, BWX, lower since October 15, 2010.
The currency traders are sovereign over the world government leaders as they on Friday October 29, 2010, called the Yen, FXY, 0.68% higher to 122.93 and in the process, dislocating carry trades globally.
Although we have Tea Party and Libertarian candidates running for public office here in the US, demanding restrained government spending, such as John Colbert, Jesse Kelly, Jackie Walorski, Keith Fimian, Jack Heck, Paul Gosar, Tim Walburg, Rick Crawford, Allen West, Steve Chabot, Ron Johnson, Sharron Angle, Kelly Ayotte, Marco Rubio, they will be unable to stop the tide of disinvestment as the world has gone past the tipping point, and has passed from an age of prosperity into an age of austerity, with the World Stocks, ACWI, and Bonds, BND, having turned lower when the Interest Rate on the US Ten Year Note, $TNX, started to rise.
I believe the ability to tax the people has reached a zenith. And that the current levels of government spending world-wide cannot be sustained.
I believe that soon there will come failed Treasury auctions, resulting in liquidity evaporation in stock and bond markets across the board. Public Financing will change dramatically as Municipal Bonds, MUB, and CMF, fall in value. It may be that even the so called inflation protected bonds, TIP, STPZ, and LTPZ, will fall in value.
Rainman in Almost Daily Rant writes The Latest Chapter Of The Global Corporate Takeover is at hand. Yes I agree that Global Corporatism is rising as the world’s sovereign authority. Rainman provides clips from the Andrew Gavin Marshall GlobalResearch.ca article “Crisis is an Opportunity”: Engineering a Global Depression to Create a Global Government, relating that global governance and a global currency system is on the way. ”In May of 2010, Dominique Strauss-Kahn, Managing Director of the IMF, stated that, “crisis is an opportunity,” and called for “a new global currency issued by a global central bank, with robust governance and institutional features,” and that the “global central bank could also serve as a lender of last resort.” However, he stated, “I fear we are still very far from that level of global collaboration.”  Well, perhaps not so far as it might seem. The notion of global governance has taken an evolutionary path to the present day, with the principle global political and economic actors and institutions incrementally constructing the apparatus of a global government. In the modern world, global governance is an inter-lapping, intersecting, and intertwined web of international organizations, think tanks, multinational corporations, nations, NGOs, philanthropic foundations, military alliances, intelligence agencies, banks and interest groups. Globalization, a term which was popularized in the late 1980s to refer to the global spread of multinational corporations, has laid the principle ideological and institutional foundations for this process. Global social, economic and political integration do not occur at an equal pace; rather, economic integration and governance on a global level has and will continue to be ahead of the other sectors of human social interaction, in both the pace and degree of integration. In short, global economic governance will set the pace for social and political global governance to follow.”
Dr. Jeff Lewis writes of The Impact of $100 Billion a Month in Quantitative Easing: New action by the Federal Reserve will most likely occur in the longest dated bonds possible, as purchasing these bonds provides the best return to the government. (The yield curve brings higher rates on 30 year Treasuries, saving the government more in financing costs than purchases of short term debt.) Most expect that the Federal Reserve will announce the next stage of the quantitative easing program immediately following the elections. Such a move would help mask political risks and give consumers more confidence heading into the Christmas season. As stated previously, the isolationists at the Federal Reserve desperately need more spending, more consumption, and more monetary expansion from bank reserve levels (M0) to savings levels (M2). Start preparing for the move by allocating more holdings into precious metals. With the money supply sure to explode by a minimum of 14%, assuming a $1.2 Trillion QE2, there is still very much to gain in hard assets, particularly metals like silver”.
European Leaders Assign Herman van Rompuy The Task Of Preparing The Legalities And Procedures For A Nation’s Sovereign Debt DefaultOctober 31, 2010
Ambrose Evans Pritchard has it correct, the European Leaders have assigned Herman van Rompuy the task of preparing the legalities and procedures for a nation’s sovereign debt default in an orderly manner with as little unseen and unanticipated collateral damage as possible, to preserve the value of the Euro as much as possible, and to assure that there will be no bailout, and that investors, as well as sovereign nations share in the default.
When economic conditions devolve to such an extent that sovereign debt default is necessary, will that nation by default have to leave the EU currency union, and if so, will it have sufficient seigniorage authority to issue bonds? And if not, will seigniorage aid be forthcoming from some source?
Index of News Articles Covering The Final Meeting Of The Task Force On European Economic Governance:
1) New York Times: “European Union Tightens Rules Governing Euro”.
3) The press conference with Van Rompuy and Barroso on video.
4) Van Rompuy’s remarks to the press via PDF Document on Consilium Europa.
5) Leigh Phillips reports on the EU Leaders Summit of October 28, 2010 EU Leaders Give Green Light To Tweak Treaty.
6) BBC News relates: EU leaders Clinch Pact To Defend Euro.
7) The OpenEurope Press Summary of October 29, 2010 reports: Le Figaro suggests that the changes could be adopted through the Lisbon Treaty’s “simplified procedure”, meaning that the amendments would be adopted by unanimity within the European Council bypassing the ratification process through national parliaments or potential referendums. Swedish Prime Minister Fredrik Reinfeldt is quoted by Deutsche Welle saying, “Many countries do not want a huge treaty reform, and therefore we are trying to narrow it down to a very limited treaty change that should be acceptable for countries without having to face referendums.”
On his BBC Blog, Gavin Hewitt argues, “[David Cameron] is instinctively opposed to treaty change for another reason. Some of his backbenchers may see it as an opportunity to try and claw back some powers to London.” However, Die Welt reported last night that Cameron agreed to back the treaty changes in return for Chancellor Merkel’s support for capping next year’s EU budget increase at 2.9%.
On Conservative Home, Open Europe’s Director Mats Persson argues, “If true, Cameron may well have severely underplayed the UK’s hand, missing the opportunity to get real concessions in return for treaty change. A one-year 2.9% as opposed to 5.9% budget increase, though important in face of budget cuts at home, is pocket change in comparison to what Cameron could have achieved.”
Speaking on BBC Today’s Programme: Foreign Secretary William Hague said that Cameron had “secured beyond any doubt a full British opt-out from possible sanctions on individual member states and established that any possible future Treaty change would not affect the UK.”
AFT reports: Hungarian Prime Minister Viktor Orban has revealed that, at an official lunch ahead of the EU summit, French President Nicolas Sarkozy said that EU Justice Commissioner Viviane Reding had “insulted France as a nation” when she dismissed Franco-German demands for Treaty change as “irresponsible”.
8) Ambrose Evans Pritchard in The Telegraph reports EU ‘haircut’ Plans Rattle Bondholders: Investors face large potential losses on eurozone debt under German plans likely to win backing from EU leaders on Friday – risking a boycott of Greek, Irish, and Portuguese bonds.
9) Constant Brand in European Voice reports Crisis Mechanism Would Affect Investors: Germany has insisted that private investors should be obliged to carry a share of losses incurred if eurozone governments make use of a permanent crisis mechanism approved by EU leaders. Angela Merkel, Germany’s chancellor, said today (29 October), at the end of a two-day summit of EU leaders, that the inclusion of private investors “is very important” to German taxpayers. “We won’t allow taxpayers alone to bear all the costs of a future crisis,” Merkel said. She said investors should also share responsibility if a country’s debt had to be restructured. Mark Rutte, the Dutch prime minister, echoed Merkel’s comments, saying that any effective crisis mechanism should “emphasise burden-sharing for the private sector”. Fear that investors might be affected by the EU’s plans have already spooked the markets, forcing up yields – the amount investors demand to hold certain bonds – on Greek, Portuguese and Irish debt. During the discussion on the permanent mechanism on Thursday (28 October), Jean-Claude Trichet, the president of the European Central Bank warned leaders about including private investors, saying it could be “counter-productive” if it led to a loss of confidence in existing debt. Jean-Claude Junker, Luxembourg’s prime minister, said the issue of including private investors was “very sensitive”, adding it could “lead to confusion in the markets”.
10) EuroIntelligence reports A (Conditional) Triumph For Merkel: A small treaty change. Less than what Angela Merkel asked for, more than what the others were ready to concede the night before. Superficially, this looks like a very European compromise. But is not. Merkel seems to be winning the argument – or least the core of the argument. Hermann van Rompuy has been asked to draw up a small Treaty change by December to allow for a permanent crisis resolution mechanism. But the treaty change will not encompass Art. 125 TFEU – the no bailout rule.
The hope is to make the Treaty big enough for the German constitutional court to accept it as part of a consistent rule set for a monetary union, yet small enough to circumvent a referendum in Ireland, or elsewhere – something you can tag on to a “technical” treaty, such as the next enlargement agreement.
To say that this is going to be a hard job, would somewhat understate the complexity of this task. In that sense, a small treaty change is not really a compromise between No Treaty change and a big Treaty change. It was a compromise for last night. But the real compromise has yet to be worked out. Reuters reports that several leaders accepted Merkel’s arguments with extreme reluctance, and the UK and Poland accepted it with some riders attached.
The European Council effectively rejected Merkel’s extreme proposals to withdraw voting rights for rogue member states, by putting on the long burner. It is technically still there. (We always suspected that Germany put this up to trade it against other demands. It was simply too extreme a proposal).
Last night, Merkel already outlined the parameters for a treaty change.
A crisis mechanism will not be a bailout mechanism, and will rest on strong conditionality. It can only be triggered if the stability of the eurozone as a whole is at risk. It will specify the role of the IMF, and it will include provisions for a bail-in of private investors. Van Rompuy delineated the future anti-crisis mechanism in a similar narrow way: it should avoid contagion from one country to another, he said, and it should avoid moral hazard. That means it will be a relatively small system, designed in such way to minimize the incentive for country to make use of it. It is not what financial commentators refer to as umbrella. The purpose of this stability arrangement will not be to protect the country in trouble, but to protect the eurozone as a whole.
Der Spiegel calls the agreement constituted a political triumph for Merkel. She had sacrificed only two of her demands – automatic sanctions under the stability pact, and the voting right withdrawal – and gained a treaty change in return. But in the end, she had the upper hand, because she effectively threatened a slap a veto on a permanent crisis resolution mechanism, which cannot conceivably work without German participation.
The news coverage this morning is confined to the Internet. The 1.30 am breakthrough was too late for the print edition. The headlines all read that Merkel prevailed partially, without giving too many details.
11) Shaun Richards writes of The Peripheral Euro Zone Nations And Europe’s Problems With Austerity.
There were further developments yesterday to follow-on from my update on this subject. For once Greece was not particularly the centre of attraction as her ten-year government bond yield only edged higher to 10.5%. However Irish government bond yields surged and whilst this coincided with a speech from her Prime Minister I do not think that this was the cause. The real cause came from an interview on RTE given by the Chairman of Anglo-Irish Bank in which he said.
Ireland needs a second state-owned bad bank, the chairman of Anglo-Irish Bank said today Mr Dukes said even after NAMA had finished its work, the banks would still be left with distressed assets.
Just to give you an idea of the scale of the potential problem estimates of commercial property lending which remains outside the first NAMA are around 70 billion Euros. Now if you factor into this that the Chairman of Anglo-Irish is plainly telling us there are problems with these loans then several issues arise. For a start Anglo-Irish was only restructured last month! I know that bad news from the Irish banking sector drips out slowly and we are never told the truth but this is a particularly poor development.
A second NAMA would have severe implications for Ireland as a sovereign nation and the burden she will have to carry for the forseeable future. I discussed on the 27th of this month that the Irish government has indicated that a further 15 billion Euros of fiscal austerity will be needed in the next four years. Well if the Chairman of Anglo-Irish is correct then that will be an under-estimate. The Irish government bond market fell heavily on the news following on from a poor week. The ten-year yield closed at 6.78% and the yield on her shortest maturity of November 2011 rose above 3% again to 3.19%. Sometimes the shortest dated maturities are the most revealing, particularly at a time of low official interest-rates.
Portugal’s government was to be found boasting that China might invest in its government bonds and that foreign investors now owned around 40% of her government bonds. Someone should perhaps point out to them that foreign investors usually invest as much for expected currency gains as for yield so should investors expect the Euro to drop he may not turn out to be quite so proud as they sell! Indeed the reality was that her ten-year government bond yield ignored such “success” and rose above 6% to 6.07%.
Having watched with a little bemusement at the way the European Parliament passed a bill for a 6.9% budget increase in a time of supposed austerity, I had several thoughts. Firstly we plainly have elected a group of people to this Parliament who do not believe the current buzz-phrase of “we are all in it together”. Indeed they are showing signs of being even more out of touch that I thought they were.
However there is a darker thought. Are we being played Sir Humphrey Appleby style? Propose an increase of 6.9% which you do not really believe you will get, but Jim Hacker, excuse me Europe’s politician’s can appear fiscally austere by restricting you and you end up with a still much too high 2.9%%! So the bureaucrats get pretty much what they want and the politician’s can make some soundbites and the music plays with Sir Humphrey ending the episode with the usual refrain of “Yes Minister.” Everybody in the episode is happy that the obvious objective of no increase at all has been safely ignored. Oh everybody but the hard-pressed taxpayers of Europe who are likely to find themselves paying yet higher sums to individuals who sometimes are exempt from tax.
Meanwhile back in the real world unemployment in the Euro zone rose to 10.1% with a further 67,000 jobs being lost in September. Just to add to the gloom inflation rose to 1.9% as well. German retail sales also fell 2.3% in September but caution is required here as retail sales can be an erratic series.
11) Pater Tenebrarum in Credit Watch October 29, 2010 article reports of Renewed Trouble for Greece, Portugal and Ireland – Irish Bonds become ‘Confetti in the Winds’.
12) Simon Clark and John Glover of Bloomberg relate Bondholder ‘Immunity’ to Losses Challenged as Irish Bail Banks: Two years after assuring senior bondholders that they wouldn’t lose their money if banks failed, the Irish government is making the same promise again. This time, some bondholders are skeptical the government will bail them out with taxpayer funds, sending down the price of senior guaranteed debt for Anglo Irish Bank Corp. to 90 cents on the euro, according to pricing data compiled by Bloomberg, to account for the risk it might not be repaid in full. Some equity investors, including Neil Dwane, who helps oversee about $80 billion of equities as chief investment officer at Allianz Global Investors’ RCM unit in Frankfurt, are angry the pledge is being made at all. “It’s as if bondholders have diplomatic immunity from losses,” Dwane said. “Two years into this crisis we’ve learned nothing and done nothing. Bondholders have got to understand that they can lose money when they invest in banks.”
13) Political analyst Giorgos Kirtsos is quoted by Le Figaro, reacting to yesterday’s announcements, that the estimates on Greece’s public deficit will be reviewed up to 15% from 13.6%. ”It is impossible to pay back the €110 billion borrowed from the EU and the IMF in only three years. We will have to restructure our debt”, he argues.
14) Niki Kitsantonis of the New York Times writes: A World Upside Down for Greeks: Giorgos Sofronas, 66, has run a small shop selling ladies’ bags in central Athens for more than four decades. This year, all of a sudden, the future became uncertain. Mr. Sofronas has seen his sales drop by 45 percent since the onset of an unprecedented debt crisis earlier this year that prompted the Greek government to increase taxes and cut public salaries, in return for a €110 billion, or $154 billion, rescue package from its euro-zone partners and the International Monetary Fund, IMF. The measures have sliced profit margins at businesses large and small and damped consumer demand. Watching shops closing one after another on his street has made Mr. Sofronas nervous, but he will not contemplate bankruptcy. “This business feeds nine people,” he said, referring to his family and five employees. “I can’t give up.” In Greece, small businesses, defined as stores or workshops employing fewer than 10 people, though many are one-person operations, account for 96 percent of all enterprises and employ around two million of Greece’s five million-strong work force. Many small businesses, particularly in Athens and on Greece’s many islands, support the tourism sector, a crucial part of the economy that is also reeling from the repercussions of the debt crisis.
The Euro, FXE, and the Australian Dollar, FXA, have been among the powerhouse currencies driving the US Dollar, $USD, down and the price of gold, $GOLD, up. The Euro was brought back from the brink of disaster by Herman van Rompuy as he gathered the European Leaders together in April and May, and announced a seigniorage aid program for Greece as well as the EFSF Monetary authority, which was subsequently announced in June, propelling the Euro to the level where it resides today, and the Euro was supported with the expectation of QE 2 by US Federal Reserve Chairman Ben Bernanke.
So now after six months of task force meetings and coming forth with some proposals for federalized economic governance such as the European Semester and the vetting of budgets before national legislature action, the next step is to prepare for orderly sovereign debt default.
I observe global governance in operation in Europe. Task groups work to resolve regional issues and then present their recommendations to state leaders, who then meet in summits and announce framework agreements, setting forth regional governance, which supersedes national legislatures, national constitutions and all state law. The announcements of the region’s leaders effectively waives national sovereignty. The word, will and way of the leaders is sovereign, in this case, the law for all Eurozone treaty participants. One is no longer a citizen of a sovereign state, rather one is resident living in a region of global governance. I raise several questions: should economic conditions devolve to such an extent that sovereign debt default is necessary, will that nation, by default, have to leave the EU currency union? And if so, will it have sufficient seigniorage authority to issue bonds? And if not, will seigniorage aid be forthcoming from some source. I see the day coming in the near future when Portugal, Italy, Ireland, Greece and Spain, will all default on their sovereign debt, and at some time thereafter, I believe a Global Seignior, which is a term that comes from Old English meaning top dog banker who takes a cut, will provide a global currency system, that is a world-wide credit system to conduct economic transactions, as many nations will have lost their sovereign debt seigniorage. The Seignior will oversee banking, lending, and credit world-wide. All seigniorage will come and go through him.
Italy Is At Risk Of Fines From The European Commission For Failure To Comply With The 2004 Court Order Regarding Clearance Of Three Trash Dumps In The Area Of MilanOctober 30, 2010
In a real stink, Open Europe Press Summary of October 29, 2010 relates that La Repubblica and El Mundo report that Italy is at risk of fines from the European Commission for failing to comply with a 2004 ruling from the European Court of Justice regarding the clearance of three landfill sites in the neighbourhood of Milan.
Keywords: trash dumps, trashdumps
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