Bonds And Stocks Fall Lower As Bond And Currency Traders Call QE 2 Monetization Of Debt

Financial market report for November 9, 2010 


A global competitive currency deflation war war commenced today November 9, 2010, as bond vigilantes called the interest rate higher on the US 30 Year Government bond, $TYX, higher to 4.25%, and as currency traders sold the New Zealand Dollar, BNZ, the Euro, FXE, the British Pound Sterling, FXB. the Canadian Dollar, FXC, the Indian Rupe, ICN, the Swedish Krona, FXS, the Australian Dollar, FXA, the Yen, FXY, as well as the developing market currencies, CEW, which called the US Dollar, $USD, higher to 77. 44.

Interest rates moved higher

Acting on the words of Richard W. Fisher, in speech entitled The Recent Decisions Of The Federal Open Market Committee, delivered before the Association for Financial Professionals in San Antonio, Texas November 8, 2010, who said in lengthy discourse:  ”For the next eight months, the nation’s central bank will be monetizing the federal debt”, the bond vigilantes, called US Interest Rates higher across the board:

$TYX: Interest on the 30 Year US Government Bond — Rose to 4.25%

$TNX: Interest on the US Ten Year Note — Rose to 2.66%

$UST2y:  Interest Rate On The 2 Year US Government Note — Rose to 0.46%

Bond vigilantes have reason to call interest rates higher on European Financial Institution Bonds, that is to call European bank bonds, higher as Abigail Moses, of Bloomberg in article Spain Leads Surge in Sovereign Credit Risk to Record in Europe reports:  Spain, EWP, led a surge in the cost of insuring European government debt to a record on concern the region’s peripheral nations will struggle to cut budget deficits and repay debt. Credit-default swaps on Spanish government bonds jumped 10.5 basis points to 275.5, an all-time high based on closing prices, according to data provider CMA


Bonds fell lower

World Government Bonds, BWX, Emerging Market Bonds, EMB, US Municipal Bonds, MUB, California Municipal Bonds, CMF, US Government Treasuries, TMF, UBT, ZROZ, TLT, BAB, IEF, IEI, Long Term Corporate Bonds, BLV, World Corporate Bonds, PICB, Mortgage Backed Bonds, MBB, and Total Bonds, BND, fell lower: the world has passed through peak credit. 

World Government Bonds, BWX

Total Bonds, BND,

Chart of TLT. US Government Bonds were near the top of the investment loss list today.

Chart of Build America Bonds, BAB, shows the Build America Bonds to be a failed investment.

Chart of Long Maturity Corporate Bonds, BLV, the cost of business borrowing increase dramatically today, thanks to Ben Bernanke’s QE2.

The end of credit has commenced with the world’s interest rates now moving higher and as no further gains can be achieved from investing in debt as the 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX, has steepened to the fullest point of gain. All further steepening will continue to create an investment demand for gold and the further steeping that is coming will destroy bond wealth.  Yes the yield curve may flatten some, but there will be no longer term flattening of the 30 10 Yield Curve.   

The fall lower of Junk Bonds, JNK, and the Leveraged Buyouts, PSP, suggests that peak investment liquidity has been achieved.


The major currencies fell lower and the US Dollar rose.

Following on the heels of the bond vigilantes, the currency traders commenced a global currency war, by calling the US Dollar, $USD, traded by UUP, higher, and started competitive currency deflation in the major currencies, by selling the New Zealand Dollar, BNZ, the Euro, FXE, the British Pound Sterling, FXB. the Canadian Dollar, FXC, the Indian Rupe, ICN, the Swedish Krona, FXS, the Australian Dollar, FXA, and the Yen, FXY.

Chart of the Euro, FXE, shows shows that it has fallen for three days now on debt fears to 137.27. Debt fears have now, that is today destabilized currencies, and have started competitive currency deflation at the hands of currency traders. The world passed today from the age of prosperity that came with the Milton Friedman, Free to Choose, floating currency regime, and into the age of austerity with rapidly falling currency values that comes at the hands of bond traders and currency traders. We have passed from investment liquidity into debt deflation.    

The Optimized Currency ETN, ICI, manifested a bearish lollipop hanging man candlestick at the top of an ascending wedge, suggesting that peak fiat currency wealth has been achieved.

The rise in the US Dollar, $USD, traded by UUP, coupled with the fall lower in the value of the small cap pure value shares, RZV, relative to the small value growth shares, RZG, RZV:RZG, suggests that investing long in yen based and dollar based carry trades is over; and that there will be a global unwinding of carry trade investments. Risk appetite turned to risk aversion today; this being communicated by the turning lower of the EUR/JPY lower as is seen in the chart of FXE:FXY as well as being communicated by the massive lollipop hanging man candlestick in the world stock yen carry trade, ACWI:FXY

Chart Of the US Dollar, $USD,

Chart of ACWI:FXY


Stocks fell lower

World stocks, ACWI, fell 0.8% lower to close at 45.95

US Stocks, NYC, and SPY, fell lower including Airlines, FAA, Real Estate, IYR,  DRN, URE, AIV, BLK, BX, BPO, FIO, REZ, STWD,  Banking, KBE, Bank of America, BAC, Community Banks, QABA, Capital Market Provider, KCE, Financial Stocks, Lazard, LAZ, Insurance Companies, KIE, and the Russell 2000, IWM, URTY, TNA. The soon coming fall in URTY and TNA will greatly reward the short seller.

Chart of SPY

Chart of URTY

Mortgage REITS, REM, fell 0.7% lower; QE 1 and QE 2 has been all about preserving the value of the mortgage-backed bonds held by Mortgage REITS and banks.

Spain, EWP, -1.1%

India, INP, INDL, -1.3%

India Earnings, EPI, -0.6 

Australia, EWA, -2.2%

Australia Small Caps, KROO,  -1.5%

Brazil Small Caps, BRF, -3.0%, Brazil, UBR 

China All Caps, YAO, -1.7%

Chinese Small Caps, HAO, -1.4%

Japan, EWJ, -0.75

Emerging Markets, EEM, -1.7%

Frontier Markets, FRN, -1.6%

Mexico, EWW -1.3%

Canada Small Caps, CNDA, -2.8%

South Africa, EZA, -1.75

New Zealand, ENZL, -1.8%

United Kingdom, EWU, -1.0%

Sweden, EWD, -0.75

South Korea Small Caps, SKOR, -1.2%

Australian Small Caps, KROO, -1.5%

European Shares, VGK, -0.9%

European Small Cap Dividend, DFE, -1.7%

European Financials, EUFN, -0.3%

Small Cap Pure Value, RZV, -1.4% This canary in the stock market coal mine warns investors to get out.

Nasdaq Buy Write, ETB, -1.2%

Nanotechnology, PXN, -1.6%

Retail, RTH, -0.7%

Retail, XRT, -1.0%

Gaming, BJK, -1.4% The chart of the vice stocks reflects the investment enthusiasm that has come from the anticipation of QE 2 by astute investors. 

Homebuilders, ITB, -1.7%

Wind Energy, FAN, -1.6%

Consumer Staples, XLP,  -0.55

Solar Energy, TAN, -2.15%

Agricultural Industry, MOO, -0.3%

Healthcare, IHF, 0.85

Biotech, PBE, -1.3%  Chart shows a double top and serves as another canary. 

Internet, PNQI, -0.6%

Health Care Facilities such as Health Care RETI, HCN, -4.7%

Hotels such as International Hotel Group, IHG, -5.9%

Metal Manufacturers, XME, -3.4%

Steel Manufacturers, SLX, -1.7%

Industrial Metal Equities, CRBI, -0.4%

Copper Miners, COPX, -1.6%

BHP Billiton, BHP,  -1.8%

Energy Services, OIH, -0.7%

Steel Manufacturers, SLX, -1.7%

International Dividend Payers, DOO, -1.2%

International Revenue ADRs, RTR, -1.1%

International Discretionary, IPD, -1.3%

Small Cap Consumer Discretionary, XLYS, -1.7%

Clean Energy, ICLN, -1.6%

Semiconductors, SMH, -0.9%

International Utilities, IPU, -0.4%

The currency traders, in calling currencies lower from their November 5, 2010 high, have commenced a global debt deflationary bear market, which is seen in today’s fall of the values of currency driven ETFs, in the MSN Finance Chart of RZV, KROO, EWD, EWW, EZA, BRF, ENZL, CNDA, INP,  IWM, …. And also seen in the Yahoo Finance Chart of RZV, KROO, EWD, EWW, EZA, BRF, ENZLCNDA, INPIWM

Inverse volatility, XXV, turned lower;  S&P Mid Term Futures Volatility, VXZ, rose; Volatility, VXX, rose.


Overall commodities fell; agricultural, food and base metal commodities rose 

History shows that when a major government monetizes its debt, commodities  inflate in value. Agricultural commodities, RJA, Base Metals, DBB, and Food Commodities, FUD, all rose today.


Precious metal mining stocks fell lower

Historical evidence shows that when the 30 Year US Treasury Bond, $USB, falls lower in the futures market, the  HUI Precious Metal Stocks, $HUI, fall lower as well. This is proving true today, as the silver miners, SIL, the gold mining stocks, GDX, and the junior gold mining stocks, GDXJ, appear to be topping out, as bonds, BND, have now fallen lower, and the chart of $HUI:$USB, appears to be topped out. In as much as the price of the junior gold mining stocks relative to gold, GDXJ:GLD, has risen parabolically, it is reasonable to expect these to fall lower.

Chart of  $HUI:$USB

Chart of  GDXJ:GLD, reflects investment hysteria that has come from QE 2 cool aid .

Yesterday’s close in the HUI Precious Metals, ^HUI, at 567.91 may be a market top for the gold mining stocks such as AEM, ANV, AZK, BNV, GBG, GFI, GOLD, GSS,KGN, NGD, and NSU.  


Gold is now confirmed as the sovereign and best investment.

Mark OByrne writesin 24hGold:  Gold Rises in All Currencies as Currency Devaluations Continue.


The chart of the 10 to 20 year US Government Bonds, and the chart of the world stocks, communicates that the world has entered into Kondratieff Winter.

Chart of TLT‘ shows that the 10 to 20 year US Government bonds have failed and can no longer produce wealth. I have consistently recommended that one go short these or invest in gold.

Chart of World Stocks, VT Monthly, shows that up through an including today, world shares have risen 2.54%.

The world entered into Kondratieff Winter on November 9, 2010, when the world shares, VT, fell 0.9% to 47.67.

Confirmation that the world has entered in Kondratievv Winter is the Alistair Holloway Bloomberg report that the Baltic Index Falls for Ninth Day; Capesizes Extend Losing Streak. The Baltic Dry Index, a measure of commodity-shipping costs, fell for a ninth day as hire rates for capesize vessels extended their longest losing streak in almost four months. The gauge dropped 15 points, or 0.6 percent, to 2,467 points, the lowest level since Oct. 1, according to data from the London-based Baltic Exchange,

Chart of Baltic Dry Index, $BDI


A global currency system is on the way

The World Bank President called for a new Global Currency System.  Emily Kaiser in NewsDaily article China And Germany Slam U.S. Policy Before G20 Summit reports:  “World Bank President Robert Zoellick called for a new global currency system, perhaps with gold as a reference point. The idea drew criticism from many policymakers and economists and there was no indication it was on the G20’s agenda this week.”

Today, with the bond vigilantes calling interest rates higher, and the world government debt, BWX, lower, and the currency traders temporarily calling the US Dollar, $USD, higher, by selling the major currencies, DBV, and the emerging currencies, CEW, the world’s central bankers and the world’s government leaders have lost their sovereign debt seigniorage.

The chart of the major currencies relative to the emerging market currencies, DBV:CEW, suggests to me that the major currencies, being more burdened by debt are going to fall faster than the emerging market currencies. Countries like the US, Japan, Portugal, Italy, Ireland, Greece and Spain, are going to be epicenters of austerity and hardship. The chart of DBV:CEW communicates that fastest destruction of wealth will come to these nations much sooner than a country like Chile, ECH, which rose 1.2% today. 

The bond vigilantes and the currency traders have usurped the sovereign authority of both central bankers and the world governors; the former have established Gold, GLD, and silver, SLV, as the world’s sovereign investments and leading global currencies.

I believe that out of intensifying currency war conducted by the currency traders, a Global Seignior, will arise and institute unified regulation of banking globally, this 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, as many nations such as Portugal, Italy, Ireland, Greece and Spain will have lost their sovereign debt seigniorage.

Evidence of such a disaster comes from the Abigail Moses and Kate Haywood of Bloomberg article, Ireland Leads Surge In Sovereign Risk To Record On Budget Woes, which reports  that credit default swaps on Ireland rose for a ninth day, soaring 18 basis points to 587, according to data provider CMA and which relates “Peripheral Europe is burning again,” according to Sanjay Joshi, who oversees about $500 million as a money manager at London & Capital Group Ltd.

It may be that these countries in the near future, may, under the proposed Merkel Ordnungspolitik (that is Governance), be kicked out of the Eurozone currency trading group.

EuroIntelligence writes in article Ireland on the brink – we are on the verge of the next hot phase of the eurozone crisis: “In his FT column, Samuel Brittan writes that the attempts to save the euro sound eerily familiar to someone who has observed the various sterling crises of the 1960s, as he has. He said the pattern is always the same – international rescue operations, backed up by domestic austerity packages. Things seem to normalise for a while, but then “when few are looking, there is another crisis, another set of international rescues and another set of domestic restrictions. And so on. Eventually the struggle is abandoned, and political and financial leaders work to pick up the pieces.” He says the only question is whether the euro will revert to national currencies, or whether it will break up into two or three currency zones.” Most of our readers will see this as typical British anti-European viewpoint. But that is not true of Samuel. He is profoundly pro-European. What he says is merely consistent with everything we know from economic history, a discipline the euro policy crowd is unfortunately not much aware of. Witnessing one inept policy response after another, we are beginning to converge to his view.”

I believe that as sovereign debt in the Eurozone becomes worthless, the Seignior will intervene to provide seigniorage. Eventually all seigniorage will come and go through him. And I believe that The Global Seignior will make the cover of Time Magazine Person Of The Year as he will have a Unifying Vision for humanity.

Seigniorage means top dog bank-note system, and comes from the Scottish and Bank of England financial system which was devised to maintain the value of currency, with reference found in ‘The History of Seigniorage Wealth Elaine Meinel Supkis’ February 7, 2008 Money Matters Blog.


In today’s news

Michael Pinto writes in that An Inflationary Death Spiral has commenced

OpenEurope in November 9, 2010 Press Summary relates:

FTcolumnist Paul Robinson notes that “fewer than one in five investors expect eurozone sovereign debt issues to be resolved without some form of restructuring or break-up of the euro, according to a poll of more than 500 Barclays Capital clients.” Another FT article reports that “Irish and Portuguese 10-year bond yields are trading at the levels Greece’s yields were at only weeks before its €110billion bail-out” in May.  

EU Economic and Monetary Affairs Commissioner Olli Rehn backed yesterday the Irish government’s four-year budgetary strategy but said that “Ireland has been a low-tax country” and that it is now time for it to lean towards becoming a “normal tax country” in the European context, reports the Irish Times.

Meanwhile, Greek government bonds fell yesterday in response to the Government’s moderate success in Sunday’s local elections. An opinion piece in the Guardian by journalist Petros Papaconstantinou and academic Costas Douzinas argues that high levels of voter abstention and spoiled ballot papers reveal that the Greek Government has “no mandate” to rule the country. 

Expansión reports that Spain’s risk rating and credit default swaps are bordering on highest recorded levels.

FT: Robinson FT FT 2 El Pais El Pais 2 Expansion BBC Reuters Deutschland WSJ WSJ 2 Mail Irish Times Irish Independent Mail: Brummer FT AFP FT Guardian: Douzinas and Papaconstantinou



debt deflation, competitive currency devaluation, bond deflation, stock deflation, sovereignty, seigniorage, the Seignior, Global Seignior, global currency system, peak wealth, peak credit, competitive currency deflation, monetization of debt, debt monetization, yield curve, Kondratieff Winter


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