Investors World Wide Sell Bonds On Concerns Over Ireland, Portugal, Italy, Greece And Spain Debt Reinforcing A Stealth Global Currency War

I … World Leaders Met At The G-20 Global Summit To Discuss Remaking The World Economy To Nurture Stable Growth And Prevent A Financial Meltdown.

Elaine Kurtenbach, of the Associated Press in Japan,  Kelly Olsen and Foster Klug in Seoul, Malcolm Foster, Jim Gomez and Tomoko Hosaka in Yokohama and Mari Yamaguchi in Tokyo, report in article Currency Row Hangs Over Summit Of Global Leaders:  President Barack Obama and other top leaders were arriving in Seoul, South Korea, for a two-day Group of 20 summit with the ambitious agenda of remaking the world economy to nurture stable growth and prevent a repeat of the financial meltdown in 2008.
But that gathering, and a weekend summit of Pacific Rim leaders in the Japanese port city of Yokohama, are taking place as those nations struggle to reconcile conflicting strategies for achieving those aims.

G-20 officials — whose countries comprise 85 percent of all economic activity — have pledged not to use their currencies as trade weapons. But tensions reignited last week when the U.S. Federal Reserve announced a $600 billion bond buying plan that angered many trading partners.

Obama, wrapping up a brief visit to Indonesia after touring India, defended the Fed’s move as a way to hasten a narrowing of huge gaps in trade and investment by engineering a weaker U.S. dollar — thus putting pressure on countries with large trade and foreign exchange surpluses.

In a letter he sent to other G-20 members, Obama defended moves to help the U.S. economy because he said its strong recovery would be the country’s most important contribution to a global recovery.

Other countries complain excess cash may flood into their markets seeking higher returns, pushing their currency values higher, squeezing their exporters and inflating bubbles in stocks or other assets that could destabilize their financial systems.

G-20 financial officials made little headway Wednesday in resolving the currency standoff, a summit spokesman, Kim Yoon-kyung, told reporters in Seoul.

“Critical agendas, such as establishing a clear guideline on limiting current account surpluses and deficits to sustainable levels and recent moves by Washington to print more money, were put on the table, but only highlighted differences between member countries,” Kim said.

Such issues were left unresolved to allow work on other issues that must be included in a declaration at the summit’s end, he said.

The G-20 first convened a leaders summit two years ago and has since supplanted the Group of Seven advanced nations as countries like China and India gained economic and political stature.

The aim is to craft a new global economic order to replace one powered by the U.S. running huge trade deficits while countries like China, Germany and Japan accumulate vast surpluses.

One U.S. proposal, for example, calls for setting guidelines for when such imbalances might become potentially destabilizing.

China announced Wednesday that its trade surplus surged to its second-highest level this year in October, raising pressure on Beijing over its currency, which the U.S. and other trading partners say is kept artificially weak, making its exports more competitive overseas.

Beijing maintains that the focus on its currency policies is misplaced.

If either side “chooses a confrontational approach, I think everybody will come out as losers,” said Vice Foreign Minister Cui Tiankai, an envoy to the Seoul talks.

On somewhat less confrontational issues, the G-20 leaders are expected to endorse greater supervision of financial institutions and support giving developing countries more say in the International Monetary Fund.

In Yokohama, trade and foreign ministers of the Asia-Pacific Economic Cooperation, APEC, forum were mulling moves toward a Pacific-wide free trade zone that would encompass more than half the world’s economic output.

“We are quite committed to that. We believe that open trade is indispensable to overcome the financial crisis and the economic crisis,” Mexican foreign minister Patricia Espinosa said on the sidelines of the meetings.

A failure to cooperate, rather than renewed financial woes, is the biggest threat, warned a report issued Wednesday by the Pacific Economic Cooperation Council, an APEC advisory group.

Debt troubles in Europe, weak U.S. growth and tensions over trade are clouding the global outlook and contributing to an “unprecedented crisis atmosphere,” the report said, citing a survey of 422 regional opinion leaders.

The report urged APEC to carry though with reforms needed to ensure more balanced, sustainable and equitable growth as the group reviews its progress toward the still unfulfilled goal, set in 1994, of achieving free trade and investment among developed members by 2010. A region-wide arrangement, dubbed the Free Trade Area of the Asia-Pacific, could help untangle a slew of bilateral and regional agreements, and by lowering trade barriers, could boost growth.

A building block of that plan is a U.S.-backed free trade agreement called the Trans-Pacific Partnership. It now includes only four small economies — Brunei, Chile, New Zealand and Singapore — but the U.S., Australia, Malaysia, Vietnam and Peru are in talks to join.

Though such moves could hurt farmers in South Korea and Japan who are outraged at the prospect of losing protective high tariffs, host Tokyo says it favors moving toward freer trade.

“In many ways, Japan has fallen behind the wave of creating freer economies,” Japanese Prime Minister Naoto Kan said Tuesday. “I think it’s time to steer once again toward opening the country.”

II … A stealth global currency war has been underway since November 4, 2010 when the interest rate on the US 30 year government bond, $TYX, sustained above 4%, and the US Dollar rose to 76.59.   

The global currency war definitely been underway since Tuesday November 9, 2010, and actually has been underway since World Stocks, ACWI, fell from 46.6 on November 4, 2010.

The global competitive currency deflation war began as bond vigilantes called the interest rate on the US 30 Year Government bond, $TYX, higher to 4.06%, on November 3, 2010.

Which resulted in the currency traders selling the world’s currencies November 4, 2010: they 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, and called the US Dollar, $USD, traded by UUP, higher to 76.59.

This as Ben Bernanke’s QE monetizes the US Government debt.  Richard W. Fisher commented in the 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:  ”For the next eight months, the nation’s central bank will be monetizing the federal debt.

The Euro, FXE, has now traded lower for the fourth day on debt concerns in Europe. Eurozone bond spreads reached record highs yesterday as economists and bond market investors questioned the ability of ‘peripheral’ European economies to stay in the euro without another rescue package, notes the FT.

This Finviz Screener of Currencies shows that since November 5, 2010, all the major currencies, DBV, (with the exception of the Mexico Peso, FXY, and the Canadian Dollar, FXC,)  and the emerging market currencies, CEW, are trading lower with the volatile Swedish Krona, FXS, and the debt burdened Euro, FXE, leading the way down.

Chart of the major currencies, DBV, shows these topped out November 5, 2010 at 24.10. 

Chart of the emerging market currencies, CEW, shows these topped out November 5, 2010 at 23.45.

III … While the Interest Rate on the 30 Year US Government Bond, $TYX, remains above 4% , concern over European Debt caused a sell off in bonds world wide today.

The 30 Year US Government Bonds, EDV, the 10 to 20 Year US Government Bonds, TLT, and the International Government Bonds, BWX, and the International Corporate Bonds, PICB, fell significantly lower today, as did mortgage backed bonds, MBB.

Chart of the 30 Year US Government Bond, EDV

Tyler Durden reports Ugly 30 Year Comes At 4.32%, Gaping 5 Bps Tail To WI, Lowest Bid To Cover In A Year Today’s $16 Billion 30 Year Auction was about as bad as they get: the yield was 4.32% (highest since May 13), a 5 bps tail to the WI, the Bid To Cover was 2.31, a collapse from October, and the worst since November 2009. Primary Dealers and Directs saved the day taking down 62%, with Indirects responsible for 38.4%. On November 4, 2010, the world pivoted from the age of credit liquidity and prosperity into the age of austerity and debt deflation. The twin spigots of credit liquidity were the ZIRP Bank of Japan lending for carry trades loans and quantitative easing by the US Federal Reserve, this being both QE 1 and the anticipation of QE 2. But now, credit liquidity has been poisoned by the bond vigilantes calling the FOMC’s actions monetization of debt. The economic fathers, Milton Friedman, and Alan Greenspan, begot the floating currency regime, which as documented above, many want to replace with a new global economic order. But, global corporatism and the hand of the bond traders and the power of the currency traders is sovereign, and the currency traders will continue their global currency war bringing debt deflation to both bonds and stocks. Global governance will be established at a later date, most likely by a powerful politician rising to be the world’s Sovereign, and an adept financier rising to be the world’s Seignior who will likely  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 The Seignior will oversee all matters of debt and credit, and implement a universal currency system, a global currency system, that will likely first be used by Portugal, Italy, Ireland, Greece and Spain, as they will have lost their sovereign debt seigniorage and the ECB will have stopped buying their debt.

Perhaps European Council President Herman Van Rompuy will rise to be the world’s Sovereign as he said November 9, 2010:  “We have together to fight the danger of a new euro-scepticism. … This is no longer the monopoly of a few countries. In every member state, there are people who believe their country can survive alone in the globalised world … It is more than an illusion: it is a lie!”, reports OpenEurope in November 10, 2010 Daily Briefing.

The chart of world government bonds, BWX, shows that the world governments have lost their sovereign debt seigniorage.

The chart of International Corporate Bonds, PICB, suggests investing in corporate bonds is no longer profitable. The chart also suggests that the end of credit has commenced and that the world has passed through Peak Credit.  Mary Childs of Bloomberg reports Credit Swaps Rise for Second Day as Rally Runs ‘Out of Gas’. The cost of protecting bonds in the U.S. from default rose for the second day, after falling last week to the lowest in six months, on concern that the debt rally is running “out of gas.” The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 2.7 basis points to a mid- price of 90.5 basis points as of 4:56 p.m. in New York, according to index administrator Markit Group Ltd

Chart of the 10 to 206 Year US Government Bonds, TLT, shows that investing in longer out US Government Debt is no longer profitable.

Chart of the US Government Mortgage Backed Bonds, MBB, shows that this investment has turned sharply down.  

The US Federal Reserve’s QE 1 and QE 2 have had an unstated but commonly perceived goal of sustaining mortgage backed bonds, MBB as well as Mortgage REITS, REM. These have, as the chart suggests topped out as well.

The European Financials, EUFN, in addition to the Interest Rate on the US 30 Year Interest Rate, $TYX, are the current focal points of the global currency war, which started November 4, 2010 as the global currency traders have undertook a plan to establish global corporatism and themselves as sovereign over humanity.

EuroIntellignce reports Eurozone Bond Spreads Reach New Record: Hardly a day goes by without a new record in eurozone bond spreads. Yesterday, Irish and Portuguese spreads reached their latest all-time highs, according to Reuters, as investors are beginning to catch on to the idea that Germany’s proposal for a permanent crisis resolution regime make a default of peripheral European sovereign very likely. The situation is further aggravated by a political impasse in Dublin ahead of a budget vote. A Portuguese debt auction today has also unnerved investors. The article quotes a Societe Generale strategist as saying: “With this kind of talk from Germany, we are heading towards putting some bond markets into a prolonged period of cold storage, à la Greece.”Can the ECB solve the peripheral eurozone solvency problem through the printing of money? Reuters Breakviews asks this question whether the eurozone is heading for a Latin American debt crisis. “The problem of the euro periphery is that the market isn’t sure Greece, Ireland, Portugal and Spain are financially viable. When the ECB buys euro-periphery debt it is therefore stepping in where investors fear to tread. What was intended as a short-term Greek crisis palliative, risks becoming the monetisation of periphery deficits,” it writes. The solution is transparent help from the IMF and the EFSF, not the printing presses (This is not the solution, it would only be monetization of debt)

Shaun Richards reports The European Central Bank Intervenes By Using Her Securities Markets Programme:  I speculated last week and yesterday that the Securities Market Programme had been in action again and we now have figures to confirm this.

The ECB has announced purchases of some 711 million Euro’s of debt which is likely to mostly have been Irish and Portuguese. Remember also that this is what the ECB has announced there are ways it could delay announcements if it wished  as it only declares settled trades. There are a lot of problems with this strategy and let us consider them.

1. It is not doing much good as yields in the two main problem countries (if we put Greece to one side for now) continue to rise in spite of the purchases. As of last night’s close then ten-year government bond yields were 7.82% in Ireland and 6.88% in Portugal. Indeed as the ECB often buys at the shorter-end of the curve the rise in the yield at the short end of Ireland’s bonds is in some ways the most worrying as her bond which expires in November 2011 now yields some 4.18%. So a year of risk and a return of 4.18% versus an official ECB interest rate of 1%. As long as Ireland pays up this could be recorded as a profit for the ECB which if you think about its other actions it probably needs to offset its shocking credit risk. There is the danger of something of a Faustian Pact here.

2. By no means all of the ECB’s Governing Council support this policy and it looked as though it was trying to wean itself off such purchases. Yet it now faces the prospect of making more and more.

3. I would like to return you to one of the causes of the current situation, the declaration that private-bondholders should share in losses in any debt restructuring or default. Now if the ECB buys ever more of the periphery’s outstanding bonds we hit a logical conundrum as there will by definition be fewer and fewer private bondholders to share the pain with. This is particularly true of Ireland which is not currently issuing any debt. So something which should be a strength to Ireland is in danger of becoming a weakness. For as private bondholders see this they may fear a restructuring more and be willing to accept losses now by selling to avoid bigger losses in the future.This is potentially a vicious circle.

4. I have remarked before that the ECB is likely to have the lowest credit rating of the world’s main central banks because of the type of assets it has accepted in return for liquidity. The only change in this situation is that the US Federal Reserve is trying to compete to head this league table too! However returning to the theme the Securities Markets Programme holds some 64.2 billion Euro’s of peripheral debt if its announcements reflect the true picture. If we analyse it we can see that it definitionally has to be considered as a low credit rating as it is buying what in effect no-one else seems to want. But further to this if we look at the pattern of purchases it must be making considerable losses at current market prices.

5. Points 3 and 4 do in the end have a logical clash. After all the ECB could buy the Irish government bond market in its entirety as it is just under 90 billion Euro’s in size. However it will have then taken front-running to a new level and there would be no private-sector bondholders to share the pain of a restructuring.

Short-term fixes rarely sit well with long-term restructuring and reform. They are not stopping Ireland and Portugal  getting ever nearer to the sort of situation that led Greece to call for international help.

IV … Five indicators evidence that investing long via Yen carry trades, and US Dollar carry trades is history

1) The fall in Junk bonds, JNK, from their Thursday November 4, 2010 high of 41.25. The chart of Junk Bonds suggests that the world has passed through Peak Investment Liquidity.

2) The fall in the Optimized Currency ETN, ICI, from its November 8, 2010 high of 47.40 suggests hat peak fiat currency wealth has been achieved

3) The fall in the small cap pure value shares, RZV, relative to the small cap growth shares, RZG, RZV:RZG, below support of 0.815 and 0.810 to close at 0.798, suggests that the currencies in falling lower are deflating the worth of the value shares and that carry trade investing can no longer be profitable.

Chart of  RZV:RZV Daily

4) The rise in the US Dollar, $USD, traded by UUP, to close November 10, 2010 at 77.67 suggests that the currency traders are now repaying their dollar carry trade loans taken out at Wall Street Brokerages.

5) The global yen carry trade, ACWI:FXY, manifested a lollipop hanging man candlestick today, as concerns arose over debt in Europe, suggesting that world stocks are going to fall lower.

V … A global bear stock market commenced on November 4, 2010, when World Stocks, ACWI, fell from 46.6.

The fall in International Utilities, IPU, US based diversified utility CenterPoint Energy, CNP, International Discretionary, IPD, and International Industrial Metal Producers, CRBI, communicates that a global bear market is underway, this also beng seen in the Yahoo Finance chart of ACWI, IPU, CNP, IPD, and CRBI.

A sampling of world stocks, show a decline since November 5, 2010   
Real Estate, IYR, -2.9%
Australia, EWA, -2.6%
European Financials, EUFN, -2.0%
Ireland, EIRL, -2.5%
Italy, EWI, -1.5%
Spain, EWP, -2.5%
Brazil Small Caps, BRF -5.2%
India, INP, -2.8%
European Shares, VGK, -1.6%
Turkey, TUR, -1.6%
China, FXI, -1.2%
Copper Miners, COPX, -1.3%
Austria, EWO, -1.4%
Emerging Markets, EEM, -1.0%
S&P, SPY, -.5%

Austria, EWO, the major lender of currency lending to Developing Europe, ESR, is trading 1.4% lower since November 5, 2010.

The high yielding Asian stocks, DNH, are a global stock market loss leader with a 2.7% loss since November 5, 2010.

Exxon Mobil, XOM, has bucked the global sell off, rising for ten days to close at 71.13. Of note, the chart shows a lollipop hanging man candlestick suggesting that its rise is over. 

The chart of Energy Services, OIH, is much the same.

Kyodo News reports in Japan Today Nikkei hits 4-month high on weaker yen, surge in bank shares. This is seen in the chart of ^N225 closing at 9830; and EWJ closing today at 10.39; and hedged Japan, DXJ, closing at 36.73, and the 200% ETF, EZJ, closing at 69.59.

Risk appetite is off, not on. And as a result the red hot, Asia, excluding Japan and China, stocks have fallen lower from their November 5, 2010 highs: Taiwan, EWT, South Korea, EWY, Hong Kong, EWH, Singapore, EWS, Malaysia, EWM, and Thailand, THD are all lower.

One can follow Asian Shares in this Finviz Screen of Asian Stocks

The One Year MSN chart of THD, EWM, EWS, EWY, EWH and EWT, shows that Thailand has been the best performing stock market over the last year and that Taiwan has been the poorest performing stock market.

The Thirty day MSN chart shows that Taiwan, EWT, and South Korea, EWY, are the most volatile of the group.  

The Five Day MSN chart shows competitive currency deflation, that is debt deflation is now underway in these stocks as they are falling from their November 5, 20101 highs … this seen as well seen in this chart

VI. Many are not as bearish as I am. Many are bullish as Tyler Durden provides the POMO Schedule  $105 Billion In 18 Monetizations Through December 9, 2010  

VII. Summary

One can call me, Mr. Bear.  Credit deflation is at hand. I believe that monetization of government debt creates an investment demand for gold. I am invested in gold bullion, $GOLD; it was a buy and hold decision made long ago.  

QE 2 is the Ultimate Expression of Surrealism. And QE 2 is the Ultimate Expression of a totally free central banker.

I will provide a ChartList of  ETFs And Stocks To Sell Short For A Debt Deflationary Bear Market free of charge up through the end of 2010 for all interested.


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