Financial market report for the week ending August 23, 2013
On Monday, August 19, 2013, Indonesia Banks, BBRI, BBCA, BMRI, BBNI, India Banks, IBN, HBN, and The National Bank of Greece, NBG, led all forms of fiat money lower.
World Stocks, VT, Nation Investment, EFA, such as Indonesia, EIDO, India, INP, SCIN, Thailand, THD, and Greece, GREK, as well as Credit, AGG, and Major World Currencies, DBV, and Emerging Market Currencies, CEW, all traded lower, as the Interest Rate on the US Ten Year Note, ^TNX, rose to 2.88%.
The eight week long rally in the Eurozone Stocks, EZU, (up 32%) and the European Financials, EUFN, (up 44%), that was sustained with a Euro Yen currency carry trade, that is supported by a EUR/JPY above 130, ended, as the Eurozone ADRs, seen in this Finviz Screener, traded lower; loss leaders included Ireland’s, IR, Greece’s CCH, PRGN, NM, France’s DEG, ALU, TOT, Belgium’s BUD, Netherland’s VPRT, ING, Luxemburg’s TS, MT, Italy’s E, Spain’s TEF, and Germany’s SI, And losses carried through to Argentina’s Bank BBVA.
Gary of Between the Hedges relates LiveMint.com reports Indonesia rupiah, stocks plunge on record current-account deficit. The current account remains in deficit for seven quarters and overseas sales decreased for a 15th month in June.
MarketWatch reports More asset purchases just won’t help economy, Fed’s Lacker says. Richmond Federal Reserve Bank President Jeffrey Lacker made a case Sunday for ending QE3: the costs of asset purchases are rising and any future benefits are likely to be small.
Sectors trading lower included
Home Building, ITB, -3.1
200% Inverse Volatility, XIV, -2.7
Energy Production, XOP -2.0, led lower by PXD, PDCE, APC, EOG, NBL, COG, FANG, GDP, ERF, RRC, BCEI, CRZO,
Energy, XLE -1.7, led lower by E, TOT, XOM, CVX, PTR, EC, IMO, STO, SNP, COP,
US Infrastructure, PKB, -1.6, led lower by PGTI, TREX, MAS, USG, AMWD, BECN, IP, LPX, JEC,
Clean Energy, PBD, -1.5, led lower by GPRE, PSTX, CECE
Yield bearing sectors trading lower included
Mortgage REITS, REM -4.3
Industrial Office REITS, FNIO -3.7
Small Cap Real Estate, ROOF -2.5
Premium REITS, KBWY -1.7
Ultra Junk Bonds, UJB -1.7
Global Utilities, DBU -1.6
Mining sectors trading lower included
Global Miners, PICK -3.6
Silver Miners, -2.8
Coal Miners, KOL -2.6
Metal Mining, XME -2.5
Gold Miners, GDX -1.7
Copper Miners, COPX -1.6
Financial sectors trading lower included
Emerging Market Financials, EMFN -2.1
European Financials, EUFN -1.5
Investment Bankers, KCE -1.5
Too Big To Fail Bankers, RWW -1.1
Global Financials, IXG -1.0
Countries trading lower included
Indonisia, EIDO -7.4
Greece, GREK -5.3
India Small Caps, SCIN -5.2
Thailand, THD -5.1
India, INP -4.5
Turkey, TUR -3.6
Philippines, EPHE -3.1
Italy, EWI -3.0
Spain, EWP -2.8
Reuters reports Amplats to cut 7,000 South African jobs. Anglo American Platinum, Amplats, said it planned almost 7,000 job cuts at its South African operations including thousands of compulsory lay-offs, drawing an angry response from a labor union and raising the risk of renewed unrest at its mines. Amplats (AMSJ.J), the world’s top platinum producer and a unit of Anglo American (AAL.L), had aimed for 14,000 job cuts after posting its first loss last year, but lowered the target after a backlash from the government and the unions, which organized a series of strikes.
Top Performing Stocks, such as POWR, and RAD, traded lower,
Ben Eisen of Market Watch reports Treasury yields jump to fresh two-year highs. Yes, the story of the day is that the Interest rate on the US Ten Year Note, ^TNX, rose to 2.88%.
Three cheers for higher interest rates, this is very good news for all Christians, as the world has passed decisively from Liberalism into Authoritarianism, and this means that Christ’s Kingdom of Heaven on Earth, after the Tribulation and Great Tribulation, is now one day more significantly closer.
Yet, three more tears for those invested in US 30 Year Bonds, EDV, and 10 Year US Government Notes, TLT.
Yields are up because investors are aware that the world central banks’ monetary policies have crossed the Rubicon of sound monetary policy and have turned “money good investments” bad, and are no longer able to stimulate credit global growth and trade, nor corporate profitability. The age of credit schemes such as Dollarization, and Currency Carry Trade Investing, is over, through, finished and done.
It was on May 24, 2013, that Jesus Christ, operating at the helm of the economy of God, Ephesians 1:10, enabled the bond vigilantes to call the interest rate on the US Government Note, ^TNX, higher to 2.01%, making for an extinction event that terminated Emerging Market Investment, EEM, and Utility Stock Investment, XLU. The rise of the interest rate on August 13 2013, to 2.71%, constituted an “apocalyptic event” that has terminated fiat money.
Today’s trade lower in all forms of fiat wealth, puts the nails in the coffin for the death and burial of Liberalism.
With the failure of Credit, AGG, on August 13, 2013, both the sovereignty of democratic nation states, (this being seen in World Treasury Bonds, BWX, collapsing in value), and the seigniorage of the world central banks, has failed. Jesus Christ, has pivoted the world’s economic and political paradigm from Liberalism to Authoritarianism.
From August 13, 2013, forward, regional nannycrats will set the rules for the formation of the new money, that being diktat money, which will determine everything else.
The Financial Physician writes A loss of confidence in the bond market will send stocks and the dollar crashing while gold and silver soar.
In news of a US China trade war on solar panels, Amy Martinez of The Seattle Times report reported on August 18, 2013, China trade tiff threatens Moses Lake REC Silicon plant. A large manufacturer of solar-grade polysilicon in Central Washington, warns of a “massive blow” to its business if China and the United States don’t resolve a trade dispute.
PV Magazine reported July 18, 2013, Norway’s Renewable Energy Corporation announced a plan to separate its REC Silicon and REC Solar businesses. While the group’s current headquarters are located in Sandvika, Norway, corporate operations for the two newly independent companies will be transferred to new head offices in Singapore for the solar business and the U.S. for the silicon division.
The group has been consistently decreasing its presence in Norway since last year while re-focusing its operations overseas.
REC will establish REC Solar and REC Silicon as independent listed companies. The group said the move would improve the financing of both companies, with REC Solar established as a debt-free leading provider of solar panels and solutions. The REC parent said it would ensure the companies would have a strong financial base that would provide “a competitive advantage and a solid fundament for both companies going forward.”
Ole Enger, REC president and CEO, said: “With these new entities, we are able to launch two independent and strong companies in an industry which is rapidly maturing.”
Enger said the current senior management of the solar and silicon segments would head up the new companies after a transitional period.
Dividing the company along the segment lines will place the two new entities in favorable positions for future growth, according to Enger.
“Solar has become a highly competitive source of energy and we strongly believe the solar industry will experience significant growth over the coming years,” Enger said.
“We recognize that it will be increasingly demanding to grow and maintain a leading position with a vertically integrated business model. By launching a pure play solar company and a pure play silicon company, both companies will be in a favorable position for attracting capital, and well equipped to streamline the market approach and stay in the forefront in terms of technology development,” he added.
The group will launch the separate entities through a financial transaction whereby REC offers 100% of the shares in REC Solar to the existing REC shareholders. In the transaction, REC Solar is valued at NOK 800 million (€102 million) and the offering is fully underwritten by REC’s largest shareholders.
REC Solar have a net cash position of NOK 300 million (€38 million) and apply for a listing on the Oslo Stock Exchange.
“With an equity ratio of 67%, REC Solar will be uniquely positioned as one of the few debt free solar panel suppliers in the industry,” the group said.
As part of the plan, the REC brand and trademark will be owned by the new Singapore-based REC Solar, headed by CEO Oyvind Hasaas, while the parent company and the associated silicon business will be rebranded in due time.
The REC parent group will receive proceeds of NOK 500 million (€63 million) from the transaction and hold a net debt of about NOK 1.7 billion (€216 million), with an equity ratio of about 53%.
The transaction is pending approval by REC shareholders through an extraordinary general meeting and by REC bondholders.
On Tuesday, August 20, 2013, World Stocks, VT, and US Stocks, VTI, bounced higher as the Interest Rate on the US Ten Year Note, ^TNX, traded lower to 2.81%.
Currency traders took the Euro, FXE, strongly higher to close at 132.86, and the Yen, FXY, marginally higher to close at 100.51, with the result that the chart of the EUR/JPY, showed a closed at 103.58; but this did not boost Eurozone Stocks, EZU, or European Financials, EUFN; both of which closed slightly lower. The US Dollar, $USD, closed strongly lower at the edge of a massive head and shoulders pattern at 80.96, suggesting that it will either sell off from here or bounce higher.
Nation Investment, EFA, and Small Cap Nation Investment, EFA, traded lower. Countries trading lower included, Indonesia, EIDO, China, YAO, Thailand, THD, Norway, NORW, the Philippines, EPHE. and the Nikkei, NKY.
Of note Business Services Company, Information Services Group, III, rose to a new high.
Most all non interest bearing sectors rose on the day
XRT, 1.7, on rising PSUN, URBN, ROST, TJX, FL, BKE, LTD, PLCE,
RZV, 1.6, on rising URI, MDCA, UNTD, EGL, III, PCTI, GK, BLOX, ADUS, NICK, MOVE, FUN,
XOP, 1.6, on rising BCEI, PDCE, COG, GPOR,
PSCI, 1.1, on rising HEES, CLC, NPO, TRS, MWA, APFC, ACET, PENX, ODC
PBS, 1.0, on rising MEG, EVC, P, SNI, WPO, NYt, ENL, RUK, SIRI, CMLS, GCI, CMLS,
PSP, 0.7, on rising DLPH, TUP, LBY, MIC, IHG, LGF, LYV, OWW, CHTR, BAH, VIAB, GPK,
CARZ, -1.2, yet TSLA, MOD, DORM, AXL, DAN, FSS, TEN, LKQ, BWA, WBC, rose
Metal and mining sectors rising today included
XME, 2.0, on rising CMD, STLD, GTLS, RS, WOR, ITW
Precious metal mining sectors rising today included
SSRI 3.9 and SIL 3.1
GDX 3.9 and GDXJ 2.0
Financial sectors traded today as follows
Jesus Christ, operating in the Economy of God, Ephesians, 1:10, has completed the corporate profit, global growth and trade, part of the Business Cycle, having fully expanded the world central banks’ monetary policies, and the potential of the speculative leveraged investment community, to produce peak stock wealth, VT, peak nation investment, EFA, peak small nation investment, IFSM, peak major currencies, DBV, peak emerging market currencies, CEW, and thus has produced peak fiat money, based upon world wide policies of investment choice, and credit schemes of all types.
Liberalism was an era of investment choice which featured investment in Global Producers, FXR, seen in this Finviz Screener, which rose 0.8% today; but as a group are now trading lower from their August 1, 2013, high. The exhaustion of the US Fed’s monetary policies of easing is seen in the weekly chart of Dividend Growth Investing, VIG, turning lower in August 2013.
It was a great day for implementing a short selling strategy. Yes, today, Tuesday August 20, 2013, was a good day to go short the 30 ETFs, seen in this Finviz Screener; well 29 ETFs and 1 stock, which is a proxy for life insurance companies; as in a bull market one buys into dips, and in a bear market one sells into pips.
Over the last month; these have traded as follows:
GNW, -9%, a proxy for life insurance companies.
I would never ever send a boy to school; I believe children, especially boys, should be homeschooled or sent to private schools. Boys have a greater propensity for developing psychopathy, and the environment of school and the indoctrination coupled with lack of education that takes place there, greatly raises the risks that one’s son will develop antisocial speech and behavior. Christina Hoff Sommers writes in the Education section of Time School has become too hostile to boys. And efforts to re-engineer the young-male imagination are doomed to fail.
Wikipedia profiles her as Author, an equity feminist, university professor, scholar at The American Enterprise Institute. She is also a member of the Board of Advisors of the nonpartisan Foundation for Individual Rights in Education. Author Barbara Marshall has stated that Sommers explicitly identifies herself as a “libertarian.” Sommers is also a registered Democrat. The Stanford Encyclopedia of Philosophy categorizes Sommers’ equity feminist views as classical liberal or libertarian and socially conservative.
Sommers wrote in The Atlantic, about her own book The War Against Boys, that misguided school curriculum, based on flawed research, is a likely cause for many problems in education including the falling reading scores of lower-school boys. Sommers writes that there is an achievement gap between boys and girls in school, and that girls in some areas are achieving more than boys. She writes, “Growing evidence that the scales are tipped not against girls but against boys is beginning to inspire a quiet revisionism. Some educators will admit that boys are on the wrong side of the gender gap.” Writing for The New York Times, Richard Bernstein wrote of The War Against Boys, “Observations like that lift Ms. Sommers’s book from polemic to entreaty. There is a cry in the wilderness quality to her book, a sense that certain simple truths have been lost sight of in the smoky quarrelsomeness of American life. One may agree with Ms. Sommers or one may disagree, but it is hard not to credit her with a moral urgency that comes both from the head and from the heart.” Her main thesis for the book deals with the inherent differences of boys and girls, and how we should not suppress them. Christina Hoff Sommers criticizes Carol Gilligan’s claim that “young women suffer in a male dominated society,” as well as William Pollack’s contention that “young men are oppressed by cultural ideals of masculinity.”
According to liberal magazine The Nation, “Hoff Sommers carefully explains to the students that much of the fault for this unfortunate phenomenon [of “pathologizing maleness”] lies with women’s studies departments. There, ‘statistically challenged’ feminists engage in bad scholarship to advance their liberal agenda. As her preliminary analysis of women’s studies textbooks has shown, these professors are peddling a skewed and incendiary message: ‘Women are from Venus, men are from Hell’. In a book review in the conservative magazine National Review, Mary Lefkowitz writes of Who Stole Feminism that “[Sommers] provides clear guidelines on how to distinguish indoctrination from education. That alone is a major service to all of us who are struggling to distinguish fact from fiction in today’s troubled academic world.”
The War Against Boys was a New York Times Notable Book of the Year for 2000. Richard Bernstein, a New York Times columnist, praised the book, writing, “The burden of [this] thoughtful, provocative book is that it is American boys who are in trouble, not girls. Ms. Sommers…makes these arguments persuasively and unflinchingly, and with plenty of data to support them.”
E. Anthony Rotundo of the Washington Post, in reviewing Sommers’ The War Against Boys, has stated: “In the end, Sommers fails to prove either claim in the title of her book. She does not show that there is a ‘war against boys.’ All she can show is that feminists are attacking her ‘boys-will-be-boys’ concept of boyhood, just as she attacks their more flexible notion. The difference between attacking a concept and attacking millions of real children is both enormous and patently obvious. Sommers’s title, then, is not just wrong but inexcusably misleading… Sommers’s book is a work of neither dispassionate social science nor reflective scholarship; it is a conservative polemic.”
On Wednesday, August 21, 2013, All forms of fiat wealth, traded lower, as the Interest Rate on the US Yen Year Note, ^TNX, traded higher to 2.86%.
All, that is every one of the World’s Major Currencies, DBV, -0.9%, such as ICN, BZF, FXS, FXA, FXC, FXY, FXF, FXE, as well as the Emerging Market Currencies, CEW, -1.1, traded lower, and the US Dollar, $USD, traded slightly higher to 81.35. Currency traders continued to successfully sell currencies short in their successful war on the world central banks, now that the bond vigilantes have control of interest rates globally, and are calling interest rates higher worldwide, as is seen in Aggregate Credit, AGG, trading lower once again.
Commodities, DBC, traded lower.
Debt deflation is starting to get underway as is seen in World Stocks, VT, US Stocks, VTI, the Nikkei, NKY, Eurozone Stocks, EZU, Asia Excluding Japan, EPP, Emerging Markets, EEM, the BRICS, EEB, and Global Producers, FXR, such as WHR, MMM, ABB, IP, SI, CNH, JNJ, LPL, trading lower.
Nation Investment, EFA, traded lower, with Asia Excluding Japan, EPP, specifically, Turkey TUR, India, INP, Indonesia, IDX, Thailand, THD, South Korea, EWY, Taiwan, EWT, Malaysia, EWM, the Philippines, EPHE, trading lower. In Europe, Sweden, EWD, and Norway, NORW, traded lower. In Latin America, Brazil, EWZ, and Mexico, EWW, traded lower. Bloomberg reports Philippine stocks tumble most in five years as trading resumes. Philippine stocks tumbled, with the benchmark index posting its biggest intraday retreat since October 2008, as local markets resumed trading after a three-day closure. The peso weakened to a two-month low and bonds dropped. And Benson te writes ASEAN Meltdown: Phisix got smoked dives 6%, Philippine Peso wilts.
The chart of the EUR/JPY showed a trade higher to 130.63, sustaining Eurozone, EZU, losses to 0.7%
Stock sectors trading lower included Inverse Volatility, XIV, Energy Production, XOP, Retail, XRT, Paper and Container Producers, WOOD, Networking, IGN, Automobiles, ,CARZ, Food and Beverage, PBJ, Global Consumer Discretionary, RXI, and Leveraged Buyouts, PSP.
Mining and Metal sectors trading lower included Steel, SLX, Metal Manufacturing, XME, Copper Mining, COPX, Global Industrial Mining, PICK, Coal Production, KOL, Uranium Mining, URA, Rare Earth REMX, Gold Mining GDX, Junior Gold Mining, GDXJ, Siler Mining, SIL, and Silver Standard Resources Inc, SSRI.
Yield bearing stock sectors trading lower included Global Real Estate, DRW, Chinese Real Estate, TAO, Electric Utilities, XLU, Global Utilities, DBU, and Shipping, SEA.
Global Financials, IXG, traded lower as European Financials, EUFN, Chinese Financials, CHIX, Far East Financials, FEFN, and Emerging Market Financials, EMFN, traded lower. India’s Banks IBN, HDB, traded lower; and Brazil’s BBDO, BSBR, BBD, and ITUB traded lower.
Emily Coyle in Wall Street Cheat Sheet reports Home Sales Hit Best Level Since 2009 In the face of higher interest rates and a sluggish economy, existing home sales in July were better than expected, hitting their best level in almost four years. The National Association of Realtors announced Wednesday that total existing home sales, which are completed transactions including single-family homes, town homes, condos, and co-ops, jumped 6.5 percent to a seasonally adjusted annual rate of 5.39 million units last month.
The Chicago Daily Herald reports Illinois reports second highest unemployment rate in July.
Denise Roland in the Telegraph reports Jens Weidmann slams ‘reckless’ talk of euro break-up as Greece bail-out talk intensifies. A break-up of the Eurozone would have “grave consequences”, the head of Germany’s central bank has warned, while talk of a third bail-out for Greece has intensified
And in Blogs Northwood.edu., Dr. Richard M. Ebeling is interviewed by Alvino-Mario Fantin in article, The Importance of Austrian Economics and F. A. Hayek for Understanding the Current Economic Crisis and for the Future of Freedom, with the Austrian Economics Center (AEC), affiliated with the Friedrich A. Hayek Institute in Vienna, Austria, and which was originally published in two parts on the AEC’s website, “Free Markets, Free People” (August 8 & 13, 2013).
AEC: What lies behind the dominant ideology of today?
Dr. Ebeling responds, “The fact is there is a “specter” that continues to haunt Europe; it is the “specter of communism”, not communism in the sense that many people want a return to the totalitarian state and Soviet-style central planning. No, I mean in the sense that Europe, and America to a slightly different extent, are still haunted by Marx’s critique of capitalism and the market order. The presumption among policy makers and many others in European society is implicitly that Marx was right in his criticisms of capitalism.
Left to its own devices, capitalism exploits workers and leads to harmful monopoly. Unregulated by the state, private capitalism is guided by the profit motive, and pursuit of profit is considered to be almost always in opposition to the “common good” or the “general welfare.” Dictated by market forces, competition always results in an “unjust” distribution of wealth.
Of course, liberal, free market capitalism produces just the opposite of these “accusations.” Competitive capitalism creates employment opportunities and rising wages for the vast majority of workers over time. Open competition is the great enemy of monopoly, since the only sustainable monopolies are those that receive support and protection from the government.”
AEC: And the only way forward is to try to move towards greater freedom, exchange, and competition?
(I relate, that Dr. Ebeling in response, communicates that meritocracy in a free market, one without government intervention, provides an individual the opportunity to earn a profit that provides him with the financial wherewithal to buy those things he desires and to improve his skills, resources and energies, to produce what others willingly take in trade)
AEC: Just as we have seen happen over and over again around the world. What do you think about the viability and long-term sustainability of the Euro? Do you foresee a collapse?
Dr. Ebeling responds, The stability and viability of a common currency requires that the regions within the currency area allow their relative price and wage structures to adapt to and reflect changes in the demands for goods and money over the common currency zone. This is a theme in Hayek’s highly insightful but neglected 1937 lectures on Monetary Nationalism and International Stability.
The member states of the EU are not willing to do this; or I should say that interest groups within these countries, including the government bureaucracies, are unwilling to fully and consistently adjust to the reality of the supply and demand for goods and money across Europe, as well as with the world economy with which the European Union inescapably interacts.
This is the reason why some groups in the countries hardest hit in the current economic crisis are calling for a return to their national currencies. Their panacea is currency devaluation and domestic price inflation through money creation to fund government spending to resist relative price and income adjustments in their economies. Inflation, however, is only an illusionary solution that soon brings about its own distortions, imbalances, and injustices.
The Eurocrats in Brussels are frightened by the fact that their dream of a United States of Europe, which they would command and control through the EU regulatory and legislative mechanisms, might implode with a successful currency “secessionist” movement. Thus, the survival of the Euro is partly dependent upon the willingness of those at the helm of the EU and the European Central Bank to provide the loanable funds and central bank-created money to put off the necessary national internal adjustments.
(I comment the inflation of the Eurozone Stocks, EZU, and the inflation of Eurozone Debt, EU, has reached its zenith and is a real force in holding back the specter of a currency secessionist movement. The prevailing force and zenith of Eurozone sovereignty of democratic nation states is seen in the chart of Eurozone Stocks, EZU, relative to Eurozone Debt, EU, that is EZU:EU, standing at a near all time high. Bespoke Investment Group in blog article Sovereign 10-Year Yields reports that Eurozone Debt 10 Year Yields have risen very little, compared to others. And I relate that this is seen in the value of Eurozone Debt, EU, remaining steady, while the US Ten Year Notes, TLT, have sold off strongly, as is seen in the combined ongoing Yahoo Finance chart of EU and TLT.
Truth is that the periphery southern Eurzone nations, that is the PIGS, Portugal, Italy, Greece and Spain, are insolvent nations and have insolvent banks loaded with nation state debt that cannot be paid; and are nations with terrible, ever-increasing Debt to GDP ratios. These insolvent sovereigns no longer have genuine treasury debt seigniorage, rather their seigniorage, and fiscal spending capability, comes from Mario Draghi’s and the ECB’s Open Monetary Program, OMT, which has spurred nation investment in Italy, EWI, and Spain, EWP, as well as world class global producers Ireland, EIRL, and Germany, EWG, EWGS.
It has been trust in Quantative Easing, and the US Dollar, as the world’s reserve currency, seen in the value of Fidelity’s FAGIX Mutual Fund rising in value, as well as Mario Draghi’s OMT, beginning in June to July of 2012, that has given moneyness to US Stocks, VTI, and Eurozone Stocks, EZU. But now with talk of tapering, trust in the monetary policies of the World Central Banks, and the Banker Regime, is starting to unwind, as is seen in the ongoing Google Finance chart of FAGIX, VTI, EZU, EEM, and DBC.
Fiat wealth, that being stock value, the Euro currency value, and the value of Eurozone debt residing in banks, stands at or near all time highs and precludes internal adjustments such as the elimination of national wage contracts and highly paid unionized public sector employment. There will be no internal adjustments, only a global credit bust and world wide financial system collapse, and out of it the bible prophesied establishment of the Beast regime of regional governance, and totalitarian collectivism, as presented in Revelation 13:1-4, together with a Communist Leader, Revelation 13:5-10, and a Communist Cleric, Revelation 13:11-18, calling people to a common vision of unity, for regional security, stability, and sustainability).
AEC: Why do people find it so hard to allow the market to function without calling for government solutions? Is it simply a fear of risk? Or is there something in our psychological make-up that makes us look to the state for help?
Dr. Ebeling responds here. And Dr. Ebeling goes on to relate, Nothing is more “revolutionary” or “progressive” than the classical liberal ideal of individual liberty, under which every human being is viewed and treated as an end in himself, who “owns” himself, to shape his own life according to his own values and meaning for living. Nothing is more moral than a social ideal of voluntary association and freedom of exchange, under which violence and coercion are removed from all human relationships to the greatest extent possible. Nothing is more “visionary” than a conception of a world in which free men may use their creative potentials in any way they desire, and which creates a world of wide opportunities and improvements in the human condition that elements poverty and generates rising prosperity for all.
That is the future that freedom can give us all. What greater ideal is worth fighting for and achieving? If, that is, we are willing to try and not waver from focusing our vision on that point on the horizon that represents the free society of the future that can be ours.
(I comment that God’s economic thinking started Liberalism, that is one be free from religious control of the pope and the nation state leader, with John Calvin’s reforms of government and society beginning in 1541 in Geneva Switzerland, as presented by Wikipedia)
(I relate that God’s idea of economics is one of kingdom and empire, where either God is sovereign or a ruler is sovereign; and this stands in contrast to Dr. Ebeling’s Libertarianism idea of personal sovereignty where “every human being is viewed and treated as an end in himself, who “owns” himself, to shape his own life according to his own values and meaning for living.”)
And Dr. Ebeling continues “Nothing is more “visionary” than a conception of a world in which free men may use their creative potentials in any way they desire, and which creates a world of wide opportunities and improvements in the human condition that elements poverty and generates rising prosperity for all.”
(I relate that God provided two great visionaries, each with visionary prophecies, these being the prophet Daniel and John the Revelator.
The first, that is Daniel, presented the vision of the Statue of Empires in Daniel 2:25-45, where Authoritarianism would rule the world in a Ten Toed Kingdom, with toes of a mixture of iron diktat, and clay democracy, would emerge from the British Empire, and the US Dollar Hegemonic Empire of Crony Capitalism, where Jesus Christ operating in Dispensation, that is economic and political plan of God, Ephesians 1:10, to expand Liberalism to provide the fullest amount of clientelism and greatest level of moral hazard based prosperity, via a Speculative Leveraged Investment Community.
The second, that is John the Revelator, presented the vision of three Beasts rising to rule the world, a Beast Regime, Revelation 13:1-4, a Beast Ruler, Revelation 13:5-10, and a Beast Prophet and Banker, Revelation 13:11-18.)
And Dr. Ebeling states “That is the future that freedom can give us all. What greater ideal is worth fighting for and achieving? If, that is, we are willing to try and not waver from focusing our vision on that point on the horizon that represents the free society of the future that can be ours.”
(I relate that God never purposed, designed, nor desired for a future of freedom apart from Jesus Christ. Freedom comes from knowing Christ as one’s all inclusive life experience, Colossian 3:1-11. The elect of God, that is the saints, those sanctified by Jesus Christ, know that the vision of a free society is an illusion on the Authoritarian Desert of the Real)
On Thursday, August 22, 2013, The chart of the Euro Yen Currency Carry Trade, that is the EUR/JPY, closed strongly higher at 131.84, largely through the trade lower in the Japanese Yen, FXY, to strong support at 99.13, taking Eurozone Stocks, EZU, 1.5%, higher, on surging Italy, EWI, Spain, EWP, Germany, EWG, EWGS, Netherland, EWN, Ireland, EIRL, and Global Producers, FXR, which took Nation Investment, EFA, higher with Russia, RSX, China, YAO, China Industrials, CHII, and China Financials, CHIX, rising strongly and’s Bank, IRE, blasted to a new rally high. And Argentina’s banks, BFR, BBVA, GGAL, and BMA, rose strongly, taking Argentina, ARGT, near its recent high.
However, the Philippines, EPHE, and Malaysia, EWM, continued lower.
Sectors rising today included, Solar, TAN, Inverse Volatility, XIV, S&P High Beta, SPHB, Energy Production, XOP, Energy Service, OIH, Home Construction, ITB, US Infrastructure, PKB, Transportation, XTN, Software, IGV, Media, PBS, Small Cap Pure Value, RZV, and Small Cap Industrial, PSCI.
Mining and Metal sectors rising strongly today included Coal, KOL, Copper Mining, COPX, Metal Manufacturing, XME, Steel, SLX, Copper Mining, COPX, Industrial Mining, PICK, Rare Earth Mining, REMX. And Silver Mining, SIL, and Gold Mining, GDX, rose today.
The chart of the US Dollar, $USD, shows a slight rise to close higher at 81.52.
Corporate debts that have come through Liberalism’s credit scheme of Dollarization have become an albatross, as well as a curse that is driving Emerging Market Bond Interest Rates higher, and Emerging Market Currencies, lower, destabilizing Nation Investment in India, INP, Brazil, EWZ, and Asia Excluding Japan, EPP, in particular, Singapore, EWS, Malaysia, EWM, the Philippines, EPHE, Thailand, THD, and Indonesia, IDX.
Stratrisks cites Tapering threat. The risk for the so-called deficit economies is that as global liquidity is reeled back by the Fed, weakness in the real or the rupee will force investors to flee stocks and bonds. That could exacerbate the currency selloff in a self-perpetuating vicious cycle leading potentially to balance of payments crises. All these countries rely heavily on foreign capital inflows to plug current account gaps
Ambrose Evans Pritchard of The Telegraph writes Emerging market rout threatens wider global economy. The $9 trillion (£5.8 trillion) accumulation of foreign bonds by the rising powers of Asia, Latin America and the emerging world risks going into reverse as one country after another is forced to liquidate holdings to shore up its currency, threatening to inflict a credit shock on the global economy.
India’s rupee and Turkey’s lira both crashed to record lows on Thursday following the US Federal Reserve releasing minutes which signaled a wind-down of quantitative easing as soon as next month.
Dilma Rousseff, Brazil’s president, held an emergency meeting on Thursday with her top economic officials to halt the real’s slide after it hit a five-year low against the dollar. The central bank chief, Alexandre Tombini, cancelled his trip to the Fed’s Jackson Hole conclave in order “to monitor market activity” amid reports Brazil is preparing direct intervention to stem capital flight.
A string of countries have been burning foreign reserves to defend exchange rates, with holdings down 8pc in Ecuador, 6pc in Kazakhstan and Kuwait, and 5.5pc in Indonesia in July alone. Turkey’s reserves have dropped 15pc this year. “Emerging markets are in the eye of the storm,” said Stephen Jen at SLJ Macro Partners. “Their currencies are in grave danger. These things always overshoot.”
Yields on 10-year bonds jumped 47 basis points to 12.29pc in Brazil on Thursday, 33 points to 9.72pc in Turkey, and 12 points to 8.4pc in South Africa. There had been hopes that the Fed might delay its tapering of bond purchases, chastened by the jump in long-term rates in the US itself. Ten-year US yields – the world’s benchmark price of money – have soared from 1.6pc to 2.9pc since early May.
Hans Redeker from Morgan Stanley said a “negative feedback loop” is taking hold as emerging markets are forced to impose austerity and sell reserves to shore up their currencies, the exact opposite of what happened over the past decade as they built up a vast war chest of US and European bonds.
The effect of the reserve build-up by China and others was to compress global bond yields, leading to property bubbles and equity booms in the West. The reversal of this process could be painful.
“China sold $20bn of US Treasuries in June and others are doing the same thing. We think this is driving up US yields, and German yields are rising even faster,” said Mr Redeker. “This has major implications for the world. The US may be strong to enough to withstand higher rates, but we are not sure about Europe. Our worry is that a sell-off in reserves may push rates to levels that are unjustified for the global economy as a whole, if it has not happened already.” Sovereign bond strategist Nicolas Spiro said India is “caught between the Scylla of faltering growth and the Charybdis of currency depreciation” as hostile markets start to pick off any country with a large current account deficit. He said India’s central bank is playing with fire by reversing its tightening measures to fend off recession. It has instead set off a full-blown currency crisis that is crippling for companies with dollar debts.
Tyler Durdin of Zero Hedge reports Why Asian markets are collapsing in 3 simple charts. Emerging Market stocks and Asian stocks have turned lower on diminished global growth prospects and massively releveraged balance sheets.
Reuters reports Brazil central bank launches $60 bln currency intervention. Brazil’s central bank announced a currency-intervention program on Thursday that will provide $60 billion worth of cash and insurance to the foreign-exchange market by year-end, a move aimed at bolstering the country’s currency, the real, as it slips to near five-year lows against the dollar.
The bank said in a statement it will sell, on Mondays through Thursdays, $500 million worth of currency swaps, derivative contracts designed to provide investors with insurance against a weaker real. On Fridays, it will offer $1 billion on the spot market through repurchase agreements.
Both are designed to prevent companies and individuals with dollar obligations from scrambling to the market at the same time, afraid that waiting will force them to pay more to buy dollars. When that happens, the real tends to weaken further and faster.
“This shows the firm determination of monetary authorities to keep the exchange rate from slipping further,” said Andre Perfeito, chief economist with Gradual Investments in São Paulo.
The program starts on Friday and runs until December, the central bank said, adding it may announce additional auctions if it sees fit.
The move comes as the government seeks ways to control inflation and keep the real from sliding while at the same time trying to kick-start an economy that has stagnated despite a rapid expansion of credit. While a weaker real can help Brazil’s export of commodities and manufactured goods, it makes raw materials and other imports more expensive, helping drive inflation higher. Brazil cut its outlook for gross domestic product (GDP) growth to 2.5 percent from 3 percent in 2013 and to 4 percent from 4.5 percent for 2014, Finance Minister Guido Mantega said in an interview with Brazil’s Globo Television Network late on Thursday.
For Perfeito, the move signals the central bank’s intention to limit interest rate hikes. In addition to controlling inflation, higher rates would attract investment to Brazil, helping the real firm against the dollar. At the same time higher rates could also slow growth by making borrowing more expensive.
“I think that this is an effort to adjust expectations a bit because $60 billion is a lot,” Perfeito said. “This kind of attitude just before a Copom meeting shows that exchange rate controls won’t be carried out only through monetary policy.”
The bank’s Copom monetary policy committee, which sets Brazil’s benchmark rate, meets on Aug. 28.
Interest-rate futures contracts suggest that there is a 76 percent chance that the central bank will raise the benchmark Selic target rate half a percentage point to 9 percent and a 24 percent chance of raising it 1.25 percentage points to 9.25 percent, according to Thomson Reuters data.
The real’s weakening and the Copom meeting come as the United States’ central banking authority, the Federal Reserve, is moving closer to ending a bond-buying program that has injected billions into the U.S. economy driving down interest rates.
With the end of the Fed’s “quantitative easing” program expected soon, capital flows have flowed out of emerging markets such as Brazil and back to the United States and other developed countries, helping to weaken the real.
Investment Broker Blunderbus in Mumbai writes Funding the current account deficit – focus on the real economy. Undue focus on financial markets while completely ignoring the problems of the real economy is not likely to make India an investment destination of choice. The faster our government understands this, the better for our unemployed millions.
BelleNews reports Indian rupee has hit a new all-time record low against the US dollar, Bank of Singapore’s chief economist Richard Jerram relates “Weakness concentrated in the Brazilian real and Indian rupee makes sense, as these are current account deficit economies with limited ability to defend their currencies. International investors have withdrawn $11.58 billion in shares and debt from India’s markets since the beginning of June, (when the Interest Rate on the US Ten Year Note, ^TNX, began to soar) according to official data. India, which is Asia’s third-largest economy, grew at an annual rate of 5% in the 2012-13 financial year, the slowest pace in 10 years.
The WSJ reports Thailand GDP highlights policy dilemma. Exports to China, Thailand’s biggest overseas market, have slumped as China’s economy cools. Meanwhile high domestic credit growth has kept local demand high, sucking in imports. The current account swung from a $1.3 billion surplus in the first quarter to a $5.1 billion deficit in the second quarter.
As economic growth has slowed, central banks normally would ease rates. But Thailand’s central bank, like many others in Asia, including the Reserve Bank of India, have been forced to keep rates stable in recent months to attract capital amid signs of an end to global easy-money policies.
Expectations U.S. rates will rise later this year as the U.S. Federal Reserve pulls back its massive stimulus program add to pressures on Asia policy makers to keep their own rates stable – or even to tighten policy – to attract capital.
In Thailand, robust private credit growth of over 12% on-year in recent months and high household debt add to reasons not to cut rates. The bank last cut its key policy rate in May. “The Bank of Thailand may have a concern about the current account deficit, which also shows that domestic spending and consumption are still quite high and that may squash the need to lower interest rates,” said Piyasak Manason, chief economist at Kiatnakin Bank. “Household debts have been rising and it’s a risk, although it’s not something to be panic about at this time,” he said.
Usara Wilaipich, a senior economist at Standard Chartered Bank, said: “Maintaining financial stability has become more important, due to increasing household debts and loans. We think the interest rate in the second half of the year will not be lowered.”
Other countries in the region are facing slowing economic growth and widening current account deficits – a worrisome combination for economies.
In India, the central bank recently effectively tightened monetary policy through measures which make it harder for banks to get hold of liquidity.
India is running a massive current account deficit because of dropping exports and a high fuel import bill.
Malaysia’s economy also appears to be heading toward its first current account deficit since the late 1990s and investors are concerned about the government’s large stock of public debt.
Arun Kumar of Mainstream Weekly writes India’s economic growth rate has been falling continuously while the consumer price inflation, current account deficit in the external sector and fiscal deficit in the Budget remain at high levels.
All the major economies of the world have been growing slowly or slowing down.
India’s exports have consequently suffered. (See Table) Imports have remained high because of the high prices of energy and India’s rising demand for energy. Further, due to uncertainty the demand for gold in India has remained high in a period when gold prices have risen globally. Thus, the gold and energy import bills have been high keeping the import bill high. This is the reason for the continuing high trade account and current account deficits. The problem has been aggravated by the high debt ($ 365 billion in September 2012) in relation to the reserves ($295 billion in January 2013) the country holds, and this prevents the RBI from intervening more aggressively. Further, the proportion of short-term debt in the total debt has increased since 2008 and this is the one that can evaporate quickly destabilizing the position of the country’s foreign exchange reserves.
With the slowing down of the Indian economy, high rate of inflation and fiscal problems, the international community has been losing confidence in the Indian economy. Thus, the credit rating agencies have been threatening to lower India’s rating. This would lead to a higher cost of borrowing abroad and devaluation of the currency adding to the repayment burden. These would lead to an increase in the current account deficit. This sets up a vicious cycle of declining growth, higher current account deficit and lowered credit rating for India.
Esandish reports India targets outflows. India’s biggest stock market slide in almost two years, surging bond yields and an unprecedented plunge in the rupee are pressuring officials for fresh steps to stem capital outflows and revive a struggling economy.
The monetary authority targeted outflows on Aug. 14, cutting the amount Indian companies can invest abroad without approval to 100 percent of their net worth from 400 percent, and saying residents can remit $75,000 each financial year compared with a previous limit of $200,000. Finance Minister Palaniappan Chidambaram said last week curbs on gold and silver imports and plans to compress inward shipments of non-essential items will trim the current-account gap to $70 billion, or 3.7 percent of GDP, this fiscal year. India will “remain exposed to funding risks” if the current-account deficit exceeds 2.5 percent of GDP and consumer-price inflation stays above 7 percent, according to Chetan Ahya, a Morgan Stanley economist in Hong Kong. Global funds have cut holdings of rupee debt by about $10 billion since May 22, when U.S. Fed Chairman Ben S. Bernanke said $85 billion a month of debt purchases could be reduced if America’s jobs market shows sustained improvement.
The Economist reports Capital controls in India. On August 14th the central bank clamped down on Indians’ ability to take money out of the country in two ways. The limit on personal remittances has been cut to $75,000 per year, from $200,000 per year. And companies are now barred from spending more than their own book value on direct investments abroad, unless they have specific approval from the central bank. Both changes reverse the gradual liberalisation of India’s balance of payments over the last decade.
The restriction on personal outflows is, apparently, to deal with incipient signs of capital flight by India’s rich. Brokers, bankers and assorted hustlers, mainly based offshore, have been rushing to offer wealthy Indians cash extraction services. Marketing emails from them have been circulating widely. The pitch is primitive: take your dough out now, convert it into a hard currency, wait for the rupee to fall to 70 against the dollar, then bring it back into the country and convert it back to rupees at the more favourable rate. Outbound personal remittances by Indians have been small historically—perhaps $1bn a year, a drop in the ocean given India’s current-account deficit of $70-80 billion. But the Indian authorities’ aim is to crack down on these schemes before they cause a much bigger speculative outflow and a self-fulfilling panic.
The second measure, the prevention of firms investing much abroad
OnePakistan reports India struggles to arrest rupee fall as output sinks. India has pledged to curtail some imports to narrow a record current account deficit and arrest a sliding currency as a sharp contraction in industrial output underlined the weakness of Asia’s third-largest economy.
Riskelia’s Blog writes Some takeaways from the ongoing emerging meltdown. The currency fragility of Turkey, India, Brazil and South Africa, all having to fund a current account deficit over 3% (the current account deficits are respectively 7%, 4.5%, 3% and 6% of GDP for the four countries).
This group of countries, dubbed the “TIBS”, must indeed constantly attract foreign flows to fund their external deficits. These flows may take the form of foreign direct investment (FDI) or of more liquid forms of investments into equity or sovereign and private debts.
When foreign investors go away (as they have been doing since the start of the year), a country running a current account deficit is faced with two alternatives: it may either devalue to restore its competitiveness and default on its external debt (at least the part of the external debt which is funded in domestic currency) or defend its currency, by consuming its foreign reserves or tightening its monetary policy. It is the monetary tightening solution which has been chosen by the TIBS. Brazil has hiked interest rates by 1.25% since April, Turkey by 0.75%, whereas India tightens liquidity to domestic lenders. This solution has been largely ineffective to counter the currencies depreciation so far.
Emerging countries are caught into a recessive spiral: it all starts from a standard “balance of payment” crisis, then interest rates hikes in turn exacerbate the growth slowdown and worsen the foreign investors’ capital flight. The unfolding currencies’ depreciation raises inflationary pressure and demands even more monetary policy tightening causing in turn further damage on growth. This is a perfect doom loop.
The TIBS should perhaps contemplate another solution: give up defending their currencies in the short run and address the lack of competition and the structural supply gluts which are the root causes of inflation in the long run. This could be done by liberalizing further the economy and fostering investments into housing, roads, rails, ports, power plants and storage facilities.
In any case, the recent events in the markets have shown that a US monetary tightening is even more damaging to emerging countries than to the US. This is probably because countries funding a part of their debts in dollars suffer from a double refinancing problem when the Fed tightens: the first problem is due to the rates hike itself (and is faced by US borrowers as well), the second one is linked to the USD appreciation relative to the domestic currency, which increases the value of future debt repayments for the borrowing country. As for the debt funded in domestic currency, it also causes some problems if the currency depreciates too much as foreign (e.g. US, EUR) investors become scared by the loss of capital due to the currency effect and go away.
Riskelia Currency Chart shows competitive currency devaluation that has come as the currency traders have successuflly sold emerging market currencies short. This has cuased a sell off in stocks in Brazil, India, Chile, Philippines, Thailand, Indonesia, and Turkey as is seen in the combined ongoing chart of Emerging Markets, EEM, together with the CAD seven, EWZ, INP, ECH, EPHE, THD, IDX, TUR.
PJP’s blog writes Of sustainability and current account deficit. To my mind, one of the most critical problems hindering India’s growth prospects is the unsustainable Current Account Deficit. Therefore, it is very clear that the only sustainable solution to tackle the large Current Account Deficit is to create extreme competitiveness in higher value-added goods and services. It is my belief that tomorrow’s world belongs to those who create, nurture and own intellectual property. Therefore, creation of intellectual property assets is a vital pre-requisite for attaining international competitiveness.
Even for items of daily consumption, the brands consumed by millions of households in India are predominantly owned by overseas enterprises.
The list is large and unending. Be it baby food, baby care products, home care & personal care products, toothpastes, toothbrushes, shaving creams, razors, breakfast cereals, snack foods, tea, coffee, cosmetics, soaps, shampoos, detergents, dish cleaners, beverages, ice creams, chocolates, confectionery, non-generic pharmaceuticals, washing machines, music systems, personal computers, laptops, refrigerators, mobile phones, televisions, cameras, air conditioners, apparel & fashion accessories, stationery products, toys, console games, sports and fitness equipment, luggage, diapers, sanitary napkins, burgers and pizzas, automobiles and many others, including even packaged drinking water, the leading brands in the Indian market are the property of foreign enterprises. Every time these products are consumed, value flows out of the country to pay for trademarks used, licences provided, services consumed and so on. With rising aspirations and growing disposable incomes, this outflow has the potential to increase exponentially over time. These foreign brands have so much been a part of the daily lives of Indian households, and for so long, that most people would genuinely think that they are Indian brands. A majority would have no inkling that every purchase would send value out of the country to the foreign owners.
This unenviable situation is indeed a disheartening reflection of the competitive capacity of India’s home-grown brands. Despite so many years of Independence and the country’s multi-dimensional strengths, it is a sad augury that we do not possess globally competitive brands created by Indian enterprises. True, there are worthy exceptions. Indian consumer brands such as Airtel, Amul, Bajaj, Godrej, Hero, Mahindra, Reliance, Tata, amongst others have found a pride of place in Indian households. Yet these examples are few and far between. For the most part, India’s market space has been abdicated to foreign-owned brands.
Be that as it may, apart from a re-examination of the merits of the revised policy currently in force, this issue also needs to be looked through a different lens altogether. Instead of bemoaning the huge outgo in terms of royalty or other payments, it is much more important to align national and corporate energies to create world-class Indian brands. Domestic enterprises must build globally competitive brands that can compete with the best in the world on equal terms. In the first instance, such brands by gaining larger franchise in the Indian global market would reduce the outflow on account of consumption of foreign brands in India. Over time, such world-class Indian brands can aspire to win global markets generating an additional flow of wealth into the country.
Sunstone Business Review writes Understanding India’s financial statements like a company’s. India imports oil, gold, metals and minerals and exports software.
India’s CAD has to be funded by borrowing in dollars in the international market where India competes with all other nations. The borrowing rate in dollars depends, in a large part, on the credit rating of the country, called the sovereign credit rating. For India, it is “BBB-”, which is just one level above a level called “junk”. A lower credit rating means a higher rate of interest. Now, if this deficit is persistent, then this will have an effect on the dollar/rupee exchange rate.
EXIM, or EXport-IMport, is predominantly a market in which the participants are corporates comprising of importers and exporters. For the country, if the CAD is persistently high, the deficit will be bridged by buying dollars and selling rupees in the global forex markets. This will have the effect a weakening rupee and strengthening dollar. This is predominantly which has been happening over the past few months. The rupee is getting weaker on account of the high CAD since India is a net importer.
Tyler Durden reports India bans all gold coin imports. India declares total ban on the importation of gold coins and medallions. “We will leave no stone unturned” to control the current account deficit and stabilize the rupee.
Karthickday writes Gold: Why and how does it impact the Indian economy? Gold is considered more liquid compared to Real estate. It also doesn’t require huge investment. Typically, it is said Peasants are the largest consumers of Gold. It protects them from Inflation. It is said to the best Hedge from uncertainties. It has been found that for every 1 % increase in income, gold consumption increases by 1.5%. India’s Golden period also happened between 2003 and 2010 when the GDP growth was spectacular and the per capita income increased tremendously. Also the MNREGA scheme increased the income of Rural masses and their primary investment turned out to be Gold.
Why has this become a big issue all of a sudden? To know this, we need to know what Current Account Deficit is. Current Account is the difference between a country’s Total Exports to Total Imports. If we have more exports compared to imports, we have Current Account Surplus. If we import more, we have Current Account Deficit (CAD). If we have CAD, we need to use our Forex reserves to settle and in the process, we deplete the Forex reserves. If it continues, in the long run we might not have money to get imports.
From 2007 to 2012, CAD has increased from 1.3 to 4.2% of GDP. Net Gold imports has increased from 1.1 to 2.7% of GDP. Net Gold to Current Account Balance has hovered around 70%. Gold export as percentage of Gold Import has decreased from 41% in 2008-09 to 29% in 2011-12. Gold has remained as one of the chief contributors to CAD. In brief, if we stop importing gold, our CAD would become 1.2% of GDP.
Andy Mukherjee of Reuters reports Indonesia imitates India’s costly growth obsession. Indonesia is failing to learn from India’s economic misery. That makes it a candidate for a disorderly decline in the currency, runaway inflation and financial instability.
The country’s central bank, which has tightened monetary policy by just 75 basis points this year, left the benchmark interest rate unchanged at 6.5 percent in its Aug. 15 meeting. It also asked banks to rein in credit if they don’t have adequate deposits. While the warning is welcome, it’s not a substitute for raising the price of money.
Indonesia’s real interest rates are already negative: the 8.6 percent inflation rate in July exceeds the 8 percent yield on 10-year government bonds. The longer Jakarta delays tackling the problem, the more entrenched its current account deficit, already high at 2.4 percent of GDP, will become. Then it will be hard to finance the gap, and even harder to reduce it without stalling growth altogether.
New Delhi’s woes should make Indonesia wary. China’s waning appetite for investment and the likely unwinding of excess dollar liquidity by the U.S. Federal Reserve may have already ended a seven-year run during which the country could safely extract 6-percent-plus growth from cheap money and abundant natural resources. Back in 2006, when China was guzzling Indonesian coal, the current account was comfortably in surplus. That helped reduce exchange-rate volatility, which was “integral” to stabilising inflation expectations and reducing capital costs, says Morgan Stanley economist Deyi Tan.
With that era now over, the authorities’ reluctance to raise interest rates is risky. Negative real interest rates will push wealthy Indonesians to take money out of the country, while rising real U.S. interest rates will make it less attractive for foreigners to bring money in. A disorderly slide in the rupiah, which has fallen 8 percent against the US dollar in the past year, will be both inflationary and destabilizing.
WhyGoldCo posts Ben Otto of Dow Jones Investors grow wary of Indonesia. Indonesia’s economy expanded by just 5.9% in the second quarter, its worst showing since 2010. Prices for commodities exports such as palm oil and coffee are down, driving the trade balance deeper into the red. Inflation hit a 4½-year high in July after the government raised fuel prices.
The country’s stocks, bonds and currency, the rupiah, all have sold off this summer as investors pulled cash out of emerging markets amid speculation the Federal Reserve was preparing to wind down its bond buying. The rupiah is down 6% against the dollar since the start of May. Over the same period, yields on 10-year government debt denominated in rupiah jumped to 7.63%, from 5.5%. Yields rise when prices fall.
Some investors see more trouble ahead. Indonesia is one of several emerging markets dealing with slowing growth, high inflation and a widening current-account deficit, a toxic combination for policy makers. If the rupiah continues to slide, it will make imported goods more expensive, driving up inflation and worsening the country’s finances. Higher interest rates and lending restrictions would shore up the currency, but further depress growth.
Channel News Daily reports Indonesia hikes fuel prices despite popular anger. Indonesia on Friday announced the first hike in fuel prices since 2008 despite violent protests against the unpopular measure, as Southeast Asia’s top economy seeks to reduce crippling subsidies.
Energy Minister Jero Wacik said the price of fuel would go up more than 30 per cent on average from Saturday, in a bid to slash handouts which gobble up a huge chunk of the national budget and have caused concern among investors. “This is a very difficult decision and the government made this choice as a last resort,” Hatta Rajasa, coordinating minister for the economy, said in a televised address to the nation. “The global crisis has impacted our economic growth… We need to take steps to improve the health of our economy.”
The move to cut one of the few government handouts in Indonesia has already sparked anger, with thousands fighting running battles with police outside parliament Monday as lawmakers voted on measures paving the way for an increase. In the hours leading up to the hike, long lines formed at petrol stations as car and motorbike owners sought to fill up with subsidised fuel before the price rocketed. Police were standing guard at many stations. Police were out in force in major cities across the country as the announcement was made, but protests were small and largely peaceful. The price of a litre of petrol will go up 44 per cent from 4,500 rupiah (US$0.46) a litre, one of the cheapest in Asia, to 6,500 rupiah. For a litre of diesel, the price will rise 22 per cent to 5,500 rupiah.
Following a marathon parliamentary session on Monday, lawmakers agreed on a revised budget that included a package of measures to compensate the millions of poor people likely to be hit hardest. Poor households will receive US$15 a month each for the next four months to offset the impact of the fuel hike, which is expected to cause the cost of everyday goods to go up as they will be more expensive to transport. President Susilo Bambang Yudhoyono had insisted on the measures before any fuel hike, which comes at a sensitive time as parties gear up for elections in 2014.
“The government is aware that the policy will result in inflation which will affect the purchasing power of those on low incomes,” Rajasa admitted on Friday, but added that the government was providing “social protection”. Yudhoyono has been seeking to lower the huge subsidies for some time and last year came close. But parliament rejected the measure in the face of huge protests, which were far bigger and more violent than this year’s.
Concern has been growing among international investors about the failure to cut the subsidies which are blamed for a widening current account deficit, as demand for fuel increases and the government is hit with ever bigger bills. The urgency for action increased last week after the rupiah, which had already lost value due to the ballooning deficit, plunged to four-year lows after a sell-off on emerging markets that hit Indonesia hard. However, the price hike could lead to economic pain in the short term, analysts have warned. Credit-Suisse said in note the hike “will likely hit already weakening investment growth, dragging down GDP growth further”. Indonesia’s economy grew at 6.02 per cent in the first quarter, the slowest pace in more than two years.
Testosterone Pit summarizes, When “QE Infinity” turns into a pipedream, hot money evaporates. Printing money and forcing interest rates to near zero, that’s how the Fed and other central banks papered over the Financial Crisis, duct-taped the bursting credit bubble back together, inflated new asset bubbles, and propped up TBTF banks. And in so doing, they accomplished a huge feat: a worldwide tsunami of hot money.
QE drove yield-seeking investors, whose livelihood was evaporating before their very eyes, to chase down yield wherever they could find it, no matter what the risks, and they found it in emerging markets and in junk. India, Indonesia, Thailand, Brazil, and other developing countries could suddenly borrow from the future at record low rates – much like developed countries – to goose growth. Companies, governments, and consumers ran up debts. Imports ballooned.
It had nefarious consequences. As the Fed was trying to devalue the dollar, other currencies rose. In September 2010, Brazilian Finance Minister Guido Mantega denounced the “international currency war” that the money-printers in Washington and elsewhere were waging against his and other emerging countries where the hot money had washed ashore. “This threatens us because it takes away our competitiveness,” he warned.
But in early May, when the Fed penciled “taper” on the calendar as something to consider, the hot money got antsy. That month, interest rates started to soar globally. Junk bonds got slammed, as did the debt of emerging markets, particularly of countries that had splurged on imports and had to fund large current-account deficits.
The selloff doused all sorts of hopes in India and has since contaminated Indonesia, Thailand, and other countries. As Dallas Fed President Richard Fisher explained so eloquently last Friday on Fox: “I think the market has come to realize there is no QE infinity.”
Since QE infinity turned into a pipedream in early May, the Indian rupee lost 20% of its value, hitting a historic low of 64.13 to the greenback early Tuesday, after a 2.3% swoon on Monday. The Indian stock market index Sensex has fallen over 11% since mid-July. Government debt, a hair above junk, got hammered, with the 10-year yield jumping 20 basis points on Tuesday to 9.43%, a Lehman-moment high. The stench of crisis was in the air, and investors who’d been holding their noses for years, finally smelled it and tried to yank their money out.
India, which is in dire need of foreign capital, is a sitting duck. It has to fund a large current-account deficit. It’s importing much of its energy, but the crashing rupee is turning that into a burden for the economy. Badly needed reforms haven’t happened, or only minimally so. A slew of issues, such as inadequate infrastructure and electricity supply, bedevil the country, but they’re not being dealt with. Instead, the government is ingeniously trying to tamp down on gold imports. And it limited the amount of money people and companies can send overseas.
To assuage his nervous countrymen, Economic Affairs Secretary Arvind Mayaram, a senior official at the Finance Ministry, announced on Tuesday, “There is no intention of government of India to put any capital controls as such.”
To prop up the rupee, the Reserve Bank of India had been raising interest rates, but the higher borrowing costs hit the corporate sector, and investors lost their appetite for bonds. It tightened liquidity to make it harder to short the rupee. Nothing worked. So on Tuesday, to save the day, it dumped dollars hand over fist. And to prop up the collapsing bond market, it announced that it would buy 80 billion rupees ($1.3 billion) worth of government bonds with long maturities on August 23. It would decide later how much more it would have to buy.
Alas, buying bonds to prop up the bond market and force down long-term interest rates contradicted its efforts to prop up the rupee by raising interest rates. QE with all its messes has arrived in India to stave off the crisis caused by the consequences of QE, or rather the end of QE, in the US. But it did stop the rupee’s slide on Tuesday, at least temporarily.
Similar selloffs are circulating around the developing world as the hot money is pulling out. In Indonesia, the rupiah dropped to a four-year low. The Jakarta Stock Exchange Composite index is down 20.5% since May 20. The government is in full prop-up mode. Its state-owned pension fund PT Jamsostek announced that it would buy equities to halt the four-day 11% slide. That deus ex machina caused the stock market to recover a little after having been down 5.8% intraday, to close down only 3.2%.
What QE giveth, the end of QE taketh away. And this is just the beginning. The Fed hasn’t even announced the end of QE; it is merely palavering about it. And it has affirmed that its zero-interest-rate policy would remain in place, possibly for years to come. The Bank of Japan is in all-out QE mode. Other central banks haven’t given up on it either – because just idle banter of ending QE has these kinds of consequences around the world.
The emerging markets were among the first destinations for the hot money. It’s logical that they would be among the first places the hot money is trying to get out of while it still can. As the end of “QE infinity” approaches, and if the Fed actually stops printing money for the first time in five years of drunken partying, the movie now playing in the emerging markets will likely start playing at theaters closer to home.
The new salvation religion being preached in Japan to a hardened and cynical bunch who’ve lived through one of the worst bubbles and busts in recent history is this: prodigious money-printing will devalue the yen, causing exports to skyrocket and imports to shrink. The resulting trade surplus will save Japan. But the opposite is happening. And it’s happening fast! Read…. Abenomics Utter Fail: Japan’s Crazy Exploding Trade Deficit.
We are witnessing the end of the era of mortgage finace employment and financialization of mortgage debt by mortgage REITS. Reuters reports Wells Fargo to cut 2,300 mortgage jobs as refinancing slows. And I relate that mortgage REITS, REM, have sold off terrifically since May 21, 2013, when the Interest Rate on the US Ten Year Note, ^TNX, rose to 2.01%, as is seen in their ongoing Yahoo Finance chart.
On Friday, August 23, 2013, The chart of the EUR/JPY shows a close higher to end the week at 132.12, as the Euro, FXE, traded higher, and the Yen, FXY, traded lower, taking the Eurozone, EZU, to match its all time high. Mining sectors, GDX, GDXJ, SIL, SSRI, PICK, XME, REMX, COPX, rose.
Summary of financial market activity for the week ending August 23, 2013. Since the Interest Rate on the US Ten Year Note, ^TNX, began its rise to 2.01% on May 2013 to 2.82%, today, August 23, 2013, the EURJPY has rise 3%, EU Debt, EU, 2%, Eurozone Stock, EZU, 3%, US Stocks 4%, and European Financials, EUFN, 5%, while Aggregate Credit AGG, has fallen 3%, and the Emerging Markets, EEM, 8%, Emerging Market Financials, EMFN, 15%, and Emerging Market Bonds, EMB, 8%. Despite a 13% loss of value in the Argentine Peso, Argentina, ARGT, and its banks has been supported by related banks in the Eurozone.
Emerging Market Bonds in Latin America have always been fraught with great risk and nothing but trouble for investors. Boris Korby, Raymond Colitt and Francisco Marcelino of Bloomberg report “A year after it began, Brazil’s municipal bond market has been brought to a standstill by the federal government after Credit Suisse Group AG and Bank of America Corp. provoked a backlash by collecting $140 million in fees from the first two borrowings… Brazilian Treasury officials, who approve state financing requests and provide guarantees backing loans, are starting to demand terms to curb the profits, seeking to protect taxpayers from being exploited and to limit their own borrowing costs while alienating bankers in the process. State officials at Mato Grosso and Parana say the demands are imperiling loans they’re seeking from Credit Suisse, derailing a market the government had projected could grow to as big as $25 billion by 2014.”
Robert Wenzel of Economic Policy Journal posts Soaring interest rates. The very nature of money changed with the rise of the Interest Rate on the US Ten Year Note, ^TNX, beginning in May 2013.
Money, that is fiat money, was that which built wealth, such as World Stocks, VT, underwrote credit, such as World Treasury Bonds, BWX, and served as a means of currency exchange, such as the Australian Dollar, FXA, for economic production, commerce and trade.
In 1971, Milton Friedman convinced Richard Nixon to go off the gold standard and the US Dollar Hegemonic Empire was born, where the US Dollar served as the International Reserve Currency, and other currencies floated, that is inflated in value according to risk reward opportunities in democratic nation states.
Money, more specifically fiat money, passed away during May through August 2013. Fiat money be no more, as on May 24, 2013, Jesus Christ, operating at the helm of the economy of God, Ephesians 1:10, enabled the bond vigilantes to call the interest rate on the US Government Note, ^TNX, higher to 2.01%, making for an extinction event that terminated Emerging Market Investment, EEM, in Utility Stocks, XLU, and Real Estate Investment, IYR, such as ROOF, REZ, and REM. The rise of the interest rate on August 13 2013, to 2.71%, constituted an “apocalyptic event” that terminated fiat money.
With the failure of credit on August 13, 2013, both the sovereignty of democratic nation states, (this being seen in World Treasury Bonds, BWX, collapsing in value), and the seigniorage of the world central banks, has failed. Jesus Christ, has pivoted the world’s economic and political paradigm from Liberalism to Authoritarianism; fiat money inflationism has turned to fiat money destructionism.
From August 13, 2013, forward, regional nannycrats will set the rules for the formation of the new money, that being diktat money, which will determine everything else. It is ordained of God, that increasingly policies of diktat and schemes of debt servitude will increasingly govern mankind’s economic and political activity.
Diktat money is defined as the compliance required, as well as the trust that is engendered, the debt servitude that is enforced, and the austerity schemes that are experienced, such as heavy losses on large bank deposits via bailins, levying additional taxes, privatizations, capital controls, import curbs of branded items, sale of a country’s central bank’s gold reserves, fiscal councils, such as those reported on by the IMF, Case studies of fiscal councils and The functions and impact of fiscal councils, and statist public private partnerships, which oversee regional economic commerce, trade, and the factors of production, when sovereign regional leaders such as Jeroen Dijsselbloem, President of the Eurogroup, and Michel Barnier, EU Commissioner responsible for internal market and services, as well as sovereign regional sovereign bodies, such as the ECB, invoke mandates for regional security, stability, and sustainability. And diktat money is seen in countries with high currenct account deficit, such as in India, where import duties have been declared on the import of gold, and the import of gold coins banned; and such as in Indonesia, where curbs are placed on the import of luxury cars and some branded goods.
Liberalism featured the Milton Friedman Free To Choose floating currency Banker Regime where trust in the monetary policies of the world central bankers and the speculative leveraged investment community, provided policies of investment choice and schemes of credit, producing a moral hazard based prosperity. Katy Burne of WSJ reports Investors have yanked $30.3 billion from U.S.-listed bond mutual funds and exchange-traded funds this month, marking the third-largest monthly outflow in records going back to 1984, according to estimates by TrimTabs… The August moves come on the heels of a record $69.1 billion monthly outflow in June and a $14.8 billion outflow in July. Before June, bond funds posted inflows for 21 consecutive months. Some $1.2 trillion of investor funds flowed into bond funds between 2009 and 2012.
Now Jesus Christ acting in dispensation, Ephesians 1:10, is completing Liberalism with a rally in the EUR/JPY, taking Eurozone Stocks, EZU, and EU Debt, EU, to their peak. And He is introducing Authoritarianism. With first, The Economist reporting capital controls in India. On August 14th the central bank clamped down on Indians’ ability to take money out of the country in two ways. The limit on personal remittances has been cut to $75,000 per year, from $200,000 per year; and companies are now barred from spending more than their own book value on direct investments abroad, unless they have specific approval from the central bank. And second, a credit bust in Emerging Market Bonds, EMB, a currency rout, in Emerging Market Currencies, a stock market crash in the Emerging Markets, EEM, and a collapse of Emerging Market Financials, EMFN, centering on those countries with current account deficits, who used Liberalism credit scheme of Dollarization to underwrite corporate and sovereign debt, especially Current Account Deficit Seven, that is Current Account Deficit, CAD, seven, Brazil, EWZ, India, INP, Chile, ECH, Philippines, EPHE, Thailand, THD, Indonesia, IDX, and Turkey, TUR.
Robin Wigglesworth of Financial Times writes of A great central bank reserve unwinding. Central banks in the developing world have lost $81bn of emergency reserves through capital outflows and currency market interventions since early May, even before the recent renewal of turmoil in emerging markets. The figure, which excludes China, is equal to roughly 2% of all developing country central bank reserves, according to Morgan Stanley analysts, who compiled the data from central bank filings for May, June and July. However some countries have suffered more precipitous drops. Indonesia has lost 13.6% of its central bank reserves between the end of April and the end of July, Turkey 12.7% and Ukraine burnt through almost 10%. India, another country that has seen its currency pummelled in recent months, has shed almost 5.5% of its reserves. ‘It’s a real regime change compared to what we have been used to for the past decade,’ said James Lord, a Morgan Stanley strategist. ‘We saw huge reserve accumulation as emerging markets tried to stem currency appreciation, but now we’re seeing the exact opposite.
In the age of Authoritarianism, the only two forms of sustainable wealth, will be diktat, and the physical possession of Gold; the chart of the Gold ETF, GLD, shows a 1.6% rise today Friday, August 23, 2013 constituting a continuing breakout, as is seen in Jack Chan’s Safehaven article This past week in gold
Doug Noland posts All the makings for a major top. Global markets have become keenly sensitive to Fed “tapering” risks. On the one hand, the unfolding EM crisis has sparked de-risking and de-leveraging dynamics. “Hot money” has begun to flee EM, in the process initiating the self-reinforcing downside of what has been a historic Credit boom. EM central banks have been forced to sell international reserves (Treasury, bund, etc.) to bolster their flagging currencies and vulnerable debt and securities markets. Resulting higher yields have forced de-risking and de-leveraging in (“safe haven”) Treasuries, which has worked to pressure U.S. MBS and muni debt, in particular.
On the other hand, Fed QE is fueling major market distortions. The Fed liquidity backstop has provided a magnetic pull for global “hot money,” giving a competitive advantage to U.S. risk assets, stocks, corporate debt and, ultimately, the U.S. economy. In a replay of the late-nineties, the “king dollar” dynamic has been exacerbating EM outflows and attendant fragilities. Meanwhile, the supposed inevitable winding down of QE provides an incentive for EM central banks and the speculator community to commence de-risking prior to the withdrawal of the Federal Reserve’s market liquidity backstop. If bonds trade this poorly in the face of the Fed’s $85bn monthly purchases, who is content to wait and see the marketplace liquidity profile when our central bank is no longer a huge buyer.
The upshot has been a late-cycle speculative melt-up in U.S. stocks, in particular. Popularly shorted stocks have been targeted for “squeezes” the most aggressively since 1999.
The excesses from 1999 set the backdrop for a major market Bubble top in early-2000. Yet the late-nineties Bubble was relatively contained, chiefly impacting a narrow group of stocks, the technology sector and only a segment of the U.S. and global economy. The now well-entrenched “global government finance Bubble” has become deeply systemic in the U.S. and abroad
The Bubble has spurred excessive issuance and mispricing in high-risk junk bonds, leveraged loans and risky municipal debt. It has also spurred massive over-issuance of perceived high-quality Treasury securities and “money-like” debt instruments. It has spurred a boom in perceived liquid and low-risk ETF products, funds that loaded up on illiquid securities as “money” flooded in. It has fueled record assets in hedge funds and sovereign wealth funds. It has spurred incredible concentration of assets in the hands of a group of sophisticated financial operators most adept at playing policy-driven speculative markets.
Zero Hedge reports Best and worst performing hedge funds of 2013.
Shaun Richards writes How rising US bond yields and US monetary policy is impacting on the rest of us. The Swiss National Bank build a Maginot Line type structure at 1.20 Euros to the Swiss Franc with promises of “unlimited intervention” followed later by the monetary expansionism of “Abenomics” in Japan with the objective of not only holding the line on the Yen but weakening it. Thus we note that the SNB has on its balance sheet some 445 billion Swiss Francs worth of other currencies in return for supplying the rest of the world’s demand for the Swissy. Whilst the Bank of Japan continues on a domestic monetary expansion of creating Yen as a way of reducing its external value. So around the world there are more Swiss Francs and Japanese Yen.
I comment that the monetary expansion of the SNB has supported a rally in nation investment in Switzerland, EWL. Soon there will be a great unwinding of Switzerland’s fiat asset wealth, as the value of the SNB suffers debt deflation.
The chart of the S&P 500, $SPX, shows a 0.4% rise for the week ending Friday August 23, 2013. This presents the short selling opportunity of a lifetime, with short selling potentials being the 30 ETFs, seen in this Finviz Screener … http://tinyurl.com/m7wbo8x … Those rising this week included, TAN, 7.3 … IBB, 2.8 … FPX, 2.4 … PBS, 2.1 … XTN, 2.0 … PJP, 1.7 … EIRL, 1.6 … PSCI, 1.5 … RZV, 1.4 … IGV 1.3 … PPA 1.2 … BJK, 1.1 … FXR, 1.0. The logic of short selling is that in a bear market one sells into pips, just as in a bull market one buys into dips.