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I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.
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  • European Periphery Is Insolvent Analyst Willem Buiter Says 0 comments
    Dec 2, 2010 1:03 AM | about stocks: BND, ZROZ, EDV, TLT, IEF, BAB, IEI, BLV, MUB, CNDA, MBB, EIRL, CEW, DBV, UUP, FXC, FXE, FXY, COPX, OIH, SLX, CCXE, BWX, PICB, RZV, RZG, EMFN, EUFN, ACWI, VGK, EWP, EWI, EWO, PLND, EWG, ESR, SAN, XOM, XSD, XME, NLR, NYC, QTEC, IWM, SPY, DBC, DBB, USO, GLD
    EuroIntelligence reports European Periphery Is Insolvent And Accessing External Sources Of Funds By Ireland Will Not Help, Analyst Willem Buiter Says

    Since he gave up his blog to join Citigroup, Willem Buiter has not made many public statements. His latest essay in Citigroups crisis update hit the public terrain, and says that large parts of the periphery is insolvent, including Greece, Ireland, and Portugal, and that the market are wrong to classify Spain alongside Italy, when it is much closer to Portugal (i.e. insolvent as well).

    We got this from the Irish economy blog. Here is the opening: “Despite the recent drama, we believe we have only seen the opening act, with the rest of the plot still evolving. Although we have not had a sovereign default in the AEs since the West German sovereign default in 1948, the risk of sovereign default is manifest today in Western Europe, especially in the EA periphery. We expect these concerns to extend soon beyond the EA to encompass Japan and the US.

    Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent. The Irish sovereign cannot from its own resources ‘bail out’ the banks and make its own creditors whole. In addition, a fully-fledged bailout (permanent fiscal transfer) from EA partners or the ECB is most unlikely. Therefore, either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring with an NPV haircut, even if it is not a condition for accessing the EFSF or the EFSM at present.”

    Financial Market Report for December 1, 2010

    Introduction
    It was a surrealistic day. Rome, the renewed Roman Empire of Europe, is burning; but one would not recognize it from today’s stock market and commodity markets.

    Bond vigilantes, called the Interest Rate on the US Government Bond, $TYX, and the Interest Rate on the US Ten Year Note, $TNX, higher, after having done likewise recently on World Government Bonds and International Corporate Bonds.

    Having no choice, currency traders took the majority of currencies higher, as the US Dollar, $USD, fell on the higher US Sovereign Debt Interest Rate. The bond vigilantes are giving timely notice to all, of their strong command over all sovereign debt. Ever since Ben Bernanke announced Quantative Easing on November 5, 2010, and Mrs Merkel called for a sovereign debt default mechanism, they and not the central banks, are in control of both the short end and long end of all bonds.  

    This gave the currency traders the opportunity on November 5, 2010, to sell the world major currencies, DBV, and the emerging market currencies, CEW,  in a declaration of global currency war, effecting competitive currency deflation, that is competitive currency devaluation, to secure the world’s resources and people.       

    Currencies
    The Euro, FXE, and all currencies with the exception of the Yen, FXY, and the Ruble, XRU, rose; the Euro closed at 130.87.

    It was a yen carry trade day, specifically a euro yen carry trade day, with the basic material stocks rising the most of any sector: Copper Miners, COPX, Energy Services, OIH, Steel, SLX, International Basic Materials, DBN, rose strongly. When the Euro, FXE, and another commodity currency like the Canadian Dollar, FXC, moves, then the commodities and the basic material stocks move as well. The Canadian Small Caps stocks, CNDA, rose to a new high on today’s carry trade.  

    The currency sensitive small cap pure value shares, RZV, rose to a new high of 36.34; yet the ratio of the small cap pure value shares, RZV, relative to the small cap pure growth shares, RZG, RZV:RZG, shows that a debt deflationary bear market is still underway.

    The rise in the currencies gave a most strong jolt up to the European Financials, EUFN, up 4.5%, and the Emerging Market Financials, EMFN, up 3.0%.

    Stocks
    World Government Bonds, BWX, and International Corporate Bonds, PICB, and World Stocks, ACWI, rose.

    European shares, VGK, Spain, EWP, Italy, EWI, Austria, EWO, Poland, PLND, Germany, EWG, Emerging Europe, ESR, European Financials, EUFN, Emerging Market Financials, EMFN, the Madrid bank, Banco Santender, STD, rose.

    Shares that have been off the most recently, rose the most today; examples include
    Spain, EWP, 6.0%
    Poland, PLND, 5.3%
    Austria, EWO, 4.8%
    Indonesia, IDX, 4.6%
    Thailand, THD, 3.4%
    South Korea, EWY,  3.1%
    European Shares, VGK, 3.4%
    Sweden, EWD, 3.4%
    India Earnings, EPI, 3.9%
    India Small Caps, SCIF, 5.7%
    India, INP, 2.4%
    Brazil, EWZ, 2.35
    Asia, Excluding Japan, EPP, 2.8%
    Copper miners, COPX, rose 4.4%, on higher base metal prices.
    Software, SWH, rose 2.7%.
    Home construction, ITB, rose 3.9%

    Recently bullish stocks and sectors exploded higher; this included
    Exxon Mobil, XOM, rose 2.5%
    Semiconductors, XSD, moved to a new high.
    Metal Manufacturing, XME, rose 3.1%
    Nuclear Energy, NLR, rose 3.1%
    Energy Services, OIH,  rose 3.1%
    Retail, XRT, rose to a new high.
    Home Depot, HD, and Lowes, LOW, boomed higher.

    Market Indices rose
    New York Composite, NYC, 2.1%
    The Nasdaq 100, QTEC, 2.8%
    Russell 2000, IWM,  rose 2.2%. Indeed it is quite surrealistic to see such strength in the US Small Cap, and not be influenced by what is going on in Europe with the small cap dividend shares, DFE. It is like there is a flight to safety in the US small caps; but the stock market could suffer a liquidity evaporation, and a flame out, at any time. That is why I am invested in gold bullion.      
    S&P, SPY, 2.15
    Emerging Markets, EEM, 2.9%

    Commodities
    Commodities, DBC, rose 2.9%
    Oil, USO, rose 3.2% to the middle of a broadening top pattern giving rise to the energy service share, OIH, and the energy production shares like Exxon Mobil, XOM.
    Base, Metals, DBB, rose 3.7% giving strong rise to the basic material stocks.

    Precious Metals
    Gold, GLD, traded unchanged. Being the most excellent of a hedge against sovereign default, its rise yesterday with a breakout from a consolidation triangle, documented the investment demand for gold in a world debt deflationary bear market.

    US Government Bonds Suffered A Breakdown
    Sovereign crisis, that is sovereign debt default risk manifested in US Government Bonds, as the Interest The Rate on The 30 Year US Government Bond, $TYX, and the 10 Year US Government Bond, $TNX, rose strongly.

    It is interesting that this has come as Andrew Taylor of the Associated Press reports Social Security Cuts Are Part Of Deficit Reduction Plan. Simply by the makeup of the Blue Ribbon Panel of the Debt Reduction Task Force at the think tank, Bipartisan Policy Center, it was a foregone conclusion that Social Security cuts would be part of the proposals for deficit reduction. The cuts are a policy coup, to abscond with resources in the US Pension System. It is similar to the US Federal Reserve Quantative Easing TARP Facility, which was privatization of profits to the banking elite, and socialization of losses to the public.  

    The 30 10 US Sovereign Debt Yield Curve flattened on risk aversion to US Government Debt, as is seen in the weekly chart of the Yield Curve, $TYX:$TNX Weekly as well as the daily chart, $TYX:$TNX witnessing a deleveraging from US Sovereign Debt.

    Bonds,  BND, -0.7% ….
    Zeroes, ZROZ, -3.1% ….
    30 Year US Government bonds, EDV, -2.7% ….
    10 to 20 Year US Government bonds, TLT, -2.2%
    7 to 10 Year Us Government Bonds, IEF, -1.3%
    Build America Bonds,. BAB, -0.6%
    1 to 3 Year US Government Bonds IEI, -0.7% …
    Longer Maturity Corporate Bonds, BLV , -1.2%
    Shorter Maturity Corporate Bons, LQD, -0.2%
    Municipal Bonds, MUB, -0.5%
    California Municipal Bonds, CMF, -0.5%
    Mortgage Backed Bonds, MBB, -0.5%.

    In today’s news
    Ben Levisohn of the Wall Street Journal reports that a number of U.S. money-market funds hold securities issued by Spanish and Italian banks. Money-market funds in the U.S. hold about $400 billion of their $2.8 trillion in assets in foreign banks, according to J.P. Morgan.

    Between The Hedges reports European Sovereign Debt Credit Default Swaps fall some: The Spain sovereign cds is plunging -12.64% to 318.56 bps, the Italy sovereign cds is dropping -13.7% to 231.05 bps, the Portugal sovereign cds is falling -12.18% to 474.30 bps and the Ireland sovereign cds is falling -7.76% to 563.37 bps.

    Bradley Keoun of Bloomberg reports Citigroup Said to Discuss Hiring Former White House Budget Director Orszag. Citigroup Inc., recovering from its $45 billion bailout in 2008, is in advanced talks to hire former White House Budget Director Peter Orszag, people with knowledge of the matter said. Orszag, 41, may take a job in the New York-based firm’s investment-banking division, the people said, declining to be identified because the discussions are private. Orszag, an economist trained at Princeton University and the London School of Economics, helped shape U.S. economic stimulus during the financial crisis and overhaul the care system. The youngest member of President Barack Obama’s cabinet, he spent 18 months as White House budget director, stepping down in July. He previously served as economic adviser to President Bill Clinton and was a staff member of Clinton’s Council of Economic Advisers. Orszag’s tenure at the Clinton White House overlapped with Citigroup’s former executive-committee chairman, Robert Rubin, who served as Treasury secretary from 1995 to 1999. In 2006, when Rubin, 72, helped to found an economic research group at the Brookings Institution called the Hamilton Project, Orszag was named its first director. Obama, then a senator from Illinois, spoke at the project’s unveiling.

    Robert Peston of the BBC reports on The perilous condition of Portugal’s banks

    Emma Rowley of The Telegraph reports Portugal Banks Face ‘Intolerable’ Risk Unless Austerity Measures Are Implemented. Failure to consolidate the public finances will put the country’s banks in danger, the Bank of Portugal said in a report, which followed Prime Minister Jose Socrates last week pushing through an austerity budget. The Portuguese government says no bail-out is needed, but markets are already pointing the finger at the country as the next to follow Greece and Ireland in requesting a rescue package. “The risk will become intolerable if we do not see the implementation of measures that consolidate public finances in a credible and sustainable way,” the central bank said.

    Patraicia Kowsmann and David Gauthier-Villar of the Wall Street Journal reports Portugal’s central bank sees ‘serious challenges’.

    Operation Hope reports that John Hope Bryant was involved in the first meeting of the Obama Administration’s President’s Advisory Council on Financial Capability on November 30, 2010.

    Alex Gloy of Lighthouse Investment Management writes in Zero Hedge Ireland: Bail-Out With A Boomerang

    Ambrose Evans Pritchard of The Telegraph writes of Ireland’s debt servitude.

    Barry Eichengreen in Irish Economy reports Ireland’s Reparations Burden

    Krystof Chamonikolas of Bloomberg reports Hungary bonds extend record slump

    Charles Penty and Gavin Finch of Bloomberg report Spanish banks facing hurdle amid bailout threat


    Disclosure: I am invested in gold bullion
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