Financial market report for June 12, 2012
The chart of the US Dollar, $USD, UUP, now shows a downtrend; this as the chart of the gold ETF, GLD, shows a breakout. Jack Chan of JC’s Buy and Sell Signals, gave his buy signal to gold on June 1, 2012; this was when Mario Draghi related that the Euro is unsustainable in in its current form.
Bonds, BND, traded lower, as World Stocks, VT, and World Small Caps, VSS, and Commodities, DBC, traded higher, being led so by Oil, USO, Silver, SLV, and Gold, GLD.
Small Cap Energy, PSCE, Semiconductors, XSD, European Financials, EUFN, Silver Miners, SIL, Gold Miners, GDX, Junior Gold Miners, GDXJ, and Global Financial Institutions, IXG, India’s HDB, Brazil’s BSBR and IBN, the UK’s LYG, BCS, and RBS, as well as China’s Financials, CHIX, and China Real Estate, TAO, were stock market leaders.
The weekly chart of Japan, EWJ, which rose 1% today, reflects the death of money in April 2012, and the death of credit in April 2012. ETF Trends reports Japan ETFs: Topix Falls to Lowest Level Since Early 1980s and Forbes reports The World Is Turning Japanese, I Really Think So.
Bill Gross goes long in duration. Mitchell Reiner of Capital Investment Advisors writes in Forbes, PIMCO Total Return ETF Up. With a quarter of trading under its belt, the PIMCO Total Return ETF (BOND) has gathered over $1.1 billion in assets and returned 5.3%. The $259 billion PIMCO Total Return mutual fund, on the other hand, is up 2.4% over the same time period, as is seen in this Yahoo Finance chart of PTTAX and BOND. Tyler Durden writes Pimco Reports First Treasury Holding Increase In 2012, First Duration Increase Since October 2011. Overnight, Pimco’s flagship Total Return Fund posted its monthly update, with several notable highlights. First, total holdings in the fund rose to a record $260.7 billion, a $2 billion increase over April. Next, following months of consecutive reduction in the firm’s Treasury holdings, the TRF reported its first TSY increase, rising from 31% to 35%, a modest number historically, but definitely a change in trend. It also appears that Gross has had his fill of MBS, which as we all know too well by know, is how he plans on frontrunning the Fed’s next QE episode. At 52%, it was just a modest decline from the April 53%, and in dollar terms the $136 billion in holdings, is only the second highest ever. Still, it is notable that instead of continuing to load up on MBS, Gross is now “diversifying” into Treasurys. All other asset classes were relatively flat, with margin cash increasing slightly from -18% to -21%, or short $55 billion. Finally, the most interest data point has nothing to do with the portfolio structure, but the duration of holdings: the effective duration rose for the first time since October 2011, increasing from 4.61% to 4.81%. Is Gross finally taking a peek from underneath his shell and going to the long-end?
I comment that Mr. Gross is going long in duration at the worst possible moment as fiat wealth died June 1, 2012, on debt saturation, and on the presentation by Mario Draghi, that the Eurozone is not sustainable in its current form, and the call by Angela Merkel for a political union, and the affirmation by Jens Weidmann for a Euro zone fiscal and banking union, as related in Reuters article Bundesbank’s Weidmann Presses Spain On Reform, and the announcement of the June 10 and June 11, 2012 weekend’s finance work group, led by Herman Van Rompuy, highlights that a One Euro Government is coming, and has also started the fall of the US Dollar, $USD, UUP, and the steeping of the 10 30 US Sovereign Debt Yield Curve, $TNX:TYX, as is seen in the Steepner ETF, STPP, rising, and the Flattner ETF, FLAT, falling, causing US Debt, ZROZ, EDV, TLT, IEF, BAB, LTPZ, as well as longer duration corporate bonds, BLV, to trade lower, as the benchmark interest rate on the 10 Year US Government Note, ^TNX, has risen from its low of 1.44%.
Daily Ticker reports The American Dream Shrinks. The slow death of the American dream for middle class families gained steam in the last couple years, with a 40% decline in average net worth in the wake of the financial crisis. And Yahoo Finance reports Union of Unemployed (UCubed) Activists Now 100,000 Strong.
Economic Policy Journal reports Spanish Bond Yields Hit Euro-Era High Spain’s borrowing costs have soared today to their highest since the launch of the euro, with yields on benchmark 10-year debt rising to more than 6.8 per cent.
Open Europe reports Merkel To Work Towards Implementing Financial Transaction Tax “as rapidly and in as many countries as possible”. Angela Merkel’s CDU party’s Bavarian sister party, the CSU, has come out in support of the opposition SPD’s call for a quick introduction of a European Financial Transaction Tax, via the EU’s ‘enhanced co-operation’ clause if necessary. Süddeutsche reports that Merkel’s spokesperson has promised that she will work towards implementing the tax “as rapidly and in as many countries as possible”. The SPD’s parliamentary leader Frank-Walter Steinmeier said this morning on ZDF that providing there was concrete progress on the tax, he saw no reason to delay the vote on ratifying the fiscal treaty until the autumn. Welt Welt 2 Welt 3 Süddeutsche ARD
Open Europe reports Barroso Sees EU Banking Union Achievable. In an interview with the FT, European Commission President José Manuel Barroso suggested that a European banking union, including a single watchdog, an EU-wide deposit guarantee scheme and a resolution fund financed through bank levies, could be achieved by next year without changing the EU Treaties.
Barroso also noted, “We have a Chancellor of Germany that is indeed proposing a political union for Europe, which is extremely ambitious. We have a French President that has been highlighting the need for a more European approach regarding crucial issues like growth and investment. And we have a British Government, and this is indeed a very interesting development, that while stating its willingness to stay out of the euro, assumes as indispensable and desirable to further integration in the eurozone”, adding, “It’s of course the British right to decide if they want or not to join further steps of integration. If other countries that are not in the euro area want to join us, I think Britain is going to accept this.” FT: Barroso FT 2 Reuters Bild ARD.
Open Europe reports We Isolate And Overload Germany At Our Peril. Gideon Rachmam Says, Chief foreign affairs columnist for the Financial Times, with interests which include American foreign policy, the European Union and globalisation, argues. “Despite the burdens and risks that Germany has already taken on, the country’s government finds itself abused for not doing even more. Isolating and berating Berlin, while trying to force the country to underwrite the finances of the whole of the eurozone, is a politically dangerous course.”
FAZ’s Italy correspondent Tobias Piller argues that “Italy’s media and politicians are not, in spite of their difficult situation, discussing reforms. The country is far more pre-occupied with the question of when Germany will finally rescue the Italian economy with eurobonds”. Also in FAZ, former ECB chief economist Otmar Issing warns against any further mutualisation of debt, warning that “the principle that each country is responsible for the mistakes of its own policy (no-bail-out-clause) is not only a fundamental part of the foundation of the monetary union, it is also a non-negotiable element of a union of sovereign states.” FT: Rachman FT: Muellbauer FT: Davies Times: King WSJ: Noyer WSJ: Carney CityAM: Heath CityAM: Gallo FAZ: Piller FAZ: Issing FT Editorial
Open Europe reports A New INSA Poll For Bild Has Revealed That Angela Merkel’s CDU Party Leads On 35%, followed by the SPD on 31% and the Greens on 13%. The pirate party is on 7% while the FDP – Merkel’s junior coalition partner, and the far-left Die Linke are on 5% each. Bild
Euro Intelligence, in its for fee daily news service, provides the best of analysis reports, Germany’s Business Leaders Are Rallying Behind Angela Merkel In Support Of Her Euro Policies. The German economic establishment supports Merkel’s euro policy. The economic council of the CDU, a group of business people close to Angela Merkel’s Christian democrats, overwhelmingly supports the chancellor’s euro crisis policy, Handelsblatt reports. A poll among the 12.000 members showed that they were in favour of a rapid ratification and implementation of the fiscal pact and the ESM and that they also supported further European integration.
Euro Intelligence reports Antonio Padoa-Schioppa, Asks Germany To Spell Out The Terms Under Which It Is Ready To Engage In A Political Union. In a guest comment for Handelsblatt Antonio Padoa-Schioppa asks Wolfgang Schäuble and the German government to spell out the terms under which it is ready to engage into a political union. The law professor and brother of Tommaso Padoa-Schioppa warns that Germany’s tough current stance in the euro crisis risks destroying the euro and provoking strong anti-German feelings elsewhere in the eurozone. “If personalities of your country with the experience and the prestige of Helmut Kohl, Helmut Schmidt, Gerhard Schröder, Joschka Fischer or Jürgen Habermas, to cite the most prominent ones, are highly alarmed, is that no reason to worry?”, he asks. Padio-Schioppa reminds Schäuble that he was the co-author in 1994 of the Schäuble-Lamers-paper that argued for a strongly integrated core Europe. If Germany proposed a fiscal union with its own resources, a mutual responsibility for debt and a truly democratic government for Europe, “then I am sure the response will be positive”, Padoa-Schioppa writes.
Legal Professor Antonio Padoa Schioppa gave the lecture “Altiero Spinelli And A Long Way Towards the European Union“, at The Center for Research of European Federalism in Turin, to celebrate the one hundredth anniversary of the birth of Altier Spinelli (1907-1986) and the 50th anniversary of the Roman Treaty (1957). Antonio Padoa Schioppa was born in Vienna in 1937. After graduating from law school in 1961, he was the professor at the University of Pavia, and in 1979 he became a regular professor of Italian law at the University of Milan, where he was a dean of the Faculty of Law from 1982 to 1999. He is the member of the professional consultant council (Fachbeirat) at the Max-Planck-Institut für europäische Rechtsgeschichte in Frankfurt am Main, management board of the Italian Center for Study of Early Middle Ages (Centro Italiano di Studi sull’Alto Medioevo), president of the Academy of Arts and Letters of Lombardy Institute (Istituto Lombardo Accademia di Scienze e Lettere), Foundation “European Library for Information and Culture“ (Fondazione “Biblioteca europea di informazione e cultura”) and from 2004, member of the Scientific Center for Research of European Federalism in Turin (Centro Studi sul Federalismo di Torino). The lecture will be about the person who is unanimously considered to be one of the creators of the European integration idea. Altiero Spinelli (1907-1986) wrote with Ernesto Rossi and Eugenio Colorni “The Manifest for Free and United Europe” (better known as “The Manifest of Ventotene”) during his confinement at the island of Ventotene. In 1943, he established the European Federalist Movement, and after the WWII he was one of the protagonists of the action of European Federation. In the 1970’s, he was a member of the Commission in Bruxelles and a representative in the first European Parliament elected by general vote in 1979. He was the creator of the European Agreement of 1984.
Clara Weiss writes in WSWS Russia Prepares Army For Syrian Deployment. President Vladimir Putin has ordered the Russian general staff to work out a plan for military operations outside Russia, including in Syria.
Patrick Martin writes in WSWS Fighting Intensifies In Syria As US Pushes For Expanded Intervention US officials are pressuring Russia to go along with plans to depose the Assad regime.