I … Is the world transitioning from … an age of money and credit expansion … and into … an age of deleveraging and the rise of sovereign authority?
A pondering mind has come to believe that a Euro Germany, that is, a new German Roman Empire, has evolved since roughly the 1950s, as a major world power.
Nick Meo in Sunday Telegraph noted that Patrick Adenauer, the grandson of Germany's first post-war Chancellor Konrad, has backed legal action before the German constitutional court to try to stop Germany from contributing to eurozone bailouts in future. "We don't want to pay the debts of Greece, Portugal, Ireland and then Spain, and then others," he is quoted saying.
The Euro, FXE, was developed out German banking and sovereign debt investing. The photo by EPA captioned, “It was a grave error for Germany's Angela Merkel and France's Nicolas Sarkozy to invoke the spectre of sovereign defaults and bondholder 'haircuts' at this delicate juncture”, is most thought provoking.
The European periphery sovereign debt owned by the European banks poses systemic risk, that is the risk of a black swan event, where there could be a run on the banks; and where through rising sovereign debt interest rates, or through a rapid Euro currency depreciation, the capital of the banks will be quickly depleted, causing the banks to shutter. A “run on sovereign debt” and a “pure financial panic in Western Europe” is at hand.
AFP Le Monde quotes Eurorealist Czech Prime Minister Petr Necas arguing "nobody can force us to adopt the euro" and that for his country joining the single currency now would be "political and economic nonsense".
II … Financial market report for Monday December 6, 2010
A … The currency traders continued on with their currency war, that they commenced November 5, 2010 and sold the Euro, Swiss Franc, South African Rand, and the Swedish Krona against the Yen, causing the US Dollar, $USD, to rise.
FXE -0.7% … European shares, VGK, -0.9%
FXF -0.7% … Swiss shares, EWL -1.4%
SZR -0.6% … South Africa shares, EZA, +0.5% on higher gold mining shares
FXS -0.5% … Sweden, EWD, -1.2%
FXY +0.1% … Japan, EWJ, +0.5% and Hedged Japan, DXJ, +0.8%
BRF +1.0% … Brazil, EWZ, -0.6%
The overall trend since November 5, 2010, has been a sell off major currencies, DBV, and emerging market currencies, CEW, with a result that risk appetite has turned to risk avoidance, and an unwinding of yen carry trade investments. Below is the chart of the” world shares - yen carry trade” ACWI:FXY.
It suggests that peak stock wealth has been achieved, and that the world is at a pivot point, that is an inflection point, passing from the age of Milton Friedman Neoliberalism “Free To Choose” investing, characterised by Alan Greenspan abundant credit liquidity, and Ben Bernanke quantative easing, as well as Bank of Japan ZIRP yen carry trade lending … and … passing into an age of deleveraging characterized by both US Federal Reserve and ECB monetization of debt, where world leaders warn of sovereign crisis, and call for sovereign debt default mechanisms and where analysts warn of a Eurozone Financial Institution Sovereign Debt contagion issue.
For example, Joseph Cotterill in FTAlphaville, December 2. 2010 article, If Not The ECB, Whom?: It is important to note that the market moves largely reflected selling by long-only investors trying to reduce their exposure, rather than speculative short-selling. We re-emphasise the point that our colleague, Laurence Mutkin, already made a while ago: the bonds of several peripheral countries, while still being government bonds in name, no longer offer the advantages of a government bond – safety, liquidity, low volatility and a negative correlation with risky assets … Hence, investors running a traditional government portfolio are exiting those markets. In short, peripheral government bonds have become an asset class in search of a new investor base … The sovereign-bank asset loop is crumbling, as above, or collapsing in spectacular and sudden fashion, as Ireland has just shown. But then the domestic banks stood in for a sudden drop in foreign demand from 2009 to 2010.
I wrote regarding the trading activity for the week ending December 4, 2010: “Europe’s debt woes are not a top concern for most investors but should be as Cliff Risk emerged in the European Financials, EUFN, on November 5, 2010 as sovereign and corporate interest rates rose and as currency traders sold the Euro." I provide a chart of the European Financials, EUFN, together with the World Government Bond, BWX, and the Euro, FXE, which evidences that on November 5, 2010, the bond traders called interest rates higher on sovereign debt, and the currency traders shorted the Euro, and the European Financials sold off heavily, as investors perceived risk of the periphery government bond holdings of Europe's Banks. And the chart shows, that today, the banks have once again sold off, the European Financials are going off into the Pit of Financial Abandon, and will be taking all stocks lower with them.
Dian B. Hernriques of the New York Times, reports Madoff Suit Cites HSBC As A Helper. The trustee seeking assets of Bernard L. Madoff’s global ponzi scheme fueled a lawsuit seeking 9 Billion for a roster of defendants headed by UK financial giant HSBC, HBC.
Anchalee Worrachate of Bloomberg reports Euro's Worst to Come as Best Forecasters See Crisis Spreading. The most accurate foreign-exchange strategists say the euro’s worst annual performance since 2005 will extend into next year as the region’s sovereign-debt crisis saps economic growth. Standard Chartered Plc, the top overall forecaster in the six quarters ended Sept. 30 based on data compiled by Bloomberg predicted the euro may weaken to less than $1.20 by mid-2011 from $1.3414 last week. Westpac Banking Corp., the second most accurate, is “bearish in the short term,” and No. 3 Wells Fargo & Co. cut its outlook at the end of last week
Arthur Hill relates today: Euro Hits Resistance and SPY Becomes Over Bought. The Euro got an oversold bounce last week and this helped propel stocks higher. Strong economic numbers on Wednesday also helped the bullish cause. Even though the Euro is getting a bounce, rising interest rates in the US and continued debt concerns in the Euro could limit this advance. On the price chart, we can also see the Euro Currency Trust, FXE, entering its first resistance zone. Broken support and the 62% retracement mark resistance in the 134 area. A downturn in the Euro could weigh on stocks, which are short-term overbought. The second chart shows the 10-year Treasury Yield, $TNX, breaking out last week. This means rates are moving higher and bonds lower.
The Euro Yen Carry Trade, the EUR/JPY fell lower, causing an unwinding of carry trade investment globally; this is seen in the chart of FXE:FXY falling lower.
Adrian Ash in Gold Seek warns of Eurodämmerung.
B … World Stocks, ACWI, traded 0.2% lower on a falling Euro and falling European Financial Institutions while a number of small cap sectors continue their rise.
Brett Philbin of MarketWatch reports: Charles Schwab, is suing units of 11 big banks that sold or issued certificates in securitization trusts backed by residential mortgage loans to its bank. In a complaint filed with the Superior Court of California, County of San Francisco, Schwab, said it paid the defendants $1.38 billion for 37 certificates in 36 securitization trusts backed by residential mortgage loans. Schwab alleges the defendants made “numerous statements to Schwab about the certificates and the credit quality of the mortgage loans that backed them” and “many of those statements were untrue as to material facts.” The San Francisco discount brokerage said defendants “omitted important information, about such material facts as the loan-to-value ratios of the mortgage loans, the number of borrowers who did not live in the houses that secured their loans and the extent to which the entities that made the loans departed from their own standards in doing so.” The complaint says that because the certificates are “securities” under two California securities acts, Schwab believes it is entitled to rescind the purchase of the certificates or be paid damages for losses on the certificates. A Charles Schwab spokesman didn’t immediately respond to a request for comment. In a previous complaint filed on June 29, Schwab sued units of Bank of America, UBS, and J.P. Morgan Chase & Co. over the sale of mortgage-backed securities to the company’s bank, alleging the firms made false statements or omitted facts about the credit quality of loans that backed the investments. Two units of Wells Fargo were also named in those documents, though the bank wasn’t one of the securities dealers that sold certificates to Schwab. Rather, Wells Fargo is considered an issuer of the certificate that UBS sold to Schwab.
European Financial Institutions, EUFN, -1.1%
Switzerland Bank, UBS, -2.2%
Switzerland Bank, CS, -3.0%
UK Bank, HSBC, HBC, -0.4%
UK Bank, Barclays, BCS, -2.2%
Netherlands Bank, ING, -2.1%
Scotland Bank, RBS, -1.2%
German Bank, DB, -2.8%
Switzerland Bank, RBS, -1.2%
France Bank, BNPQY -3.0%
Spanish Bank, STD, -3.4%
Spanish Bank, BBVA, -4.0%
European Shares, VGK, -0.8%
European Small Caps, DFE, -0.2%
Germany, EWG, -0.7%
Italy, EWI, -1.9%
Spain, EWP, -2.2%
Belgium, EWK, -1.0%
Germany, EWG, -0.8%
European Oil Company, Repsol, REP, -1.4%
Austria, EWO, -0.8%
Poland, PLND, -1.3%
Switzerland, EWL, -1.4%
Sweden, EWD, -1.2%
Australia Bank, Westpac Banking, WBK, -1.3%
Australia, EWA, -0.6%
Australia Small Caps, KROO, +0.2%
International Dividend Payers, DOO, -1.0%
South Korea, EWY, -0.2%
South Korea Small Caps, SKOR, -2.0%
New Zealand, ENZL, -0.3%
India, INP, -0.2%
India Small Caps, SCIF, -1.0%
India Earnings, EPI, -0.2%
Brazil, EWZ, -0.6%
Brazil Small Caps, BRF, -0.9%
Brazil Financial, BRAF, -0.7%
Pennant Park Investment Corp, PNNT +0.8%
Triangle Capital Corporation, TCAP, +2.7%
NewStar Financial, NEWS, +0.5%
MasterCard, MA, +1.6%
EZCorp, EZPW, +0.5%
Lazard, LAZ, +0.7%
Small Cap Financial Service and sub prime automobile lender, Nicholas Financial, NICK, +3.1%
Solar Capital, SLRC, 1.7%
Nasdaq Community Banks, QABA, +1.0%
Emerging Market Financials, EMFN -1.0%
Philippines, EPHE, +1.2%
Vietnam, VNM, +2.6%
Asia Excluding Japan, EPP, -0.9%
Asia High Yielding, DNH, -0.9%
Chile, ECH, -1.0%
Copper miners, COPX, +1.5%
Energy service, OIH, +0.1%
Steel, SLX, +0.4%
Schnitzer Steel Industries, SCHN, +1.25
China, FXI, -1.3%
China Small Caps, HAO, -0.9%
China Financials, CHIX, -0.2%
Emerging Markets, EEM, -0.2%
World Stocks, ACWI, -0.2%
S&P, SPY, -0.1%
New York Composite, NYC, -0.1%
Diversified Utilities, CNP, -0.2%
Airlines, FAA, -1.0%
Real Estate, IYR, +0.1%
Banking, KBE, -0.4%
Nasdaq Community Banks, QABA, +1.1%
Global Financial Firms, IXG, -0.8%; the world’s financial firms turned lower on the falling European Financial shares
Investment Bankers, KCE, +0.45
Leveraged Buyout Firms, PSP, -0.3%
Bank of America, BAC, -1.9%
China Financials, CHIX, -1.7%
Brazil Financials, BRAF, -0.8%
Brazilian Bank, ITUB, -1.0%
Emerging Market Financials, EMFN, -1.0%
European Financial Institutions, EUFN, 1.1%
Australia Banking, Westpac Bank,WBK, 1.3%
India Earnings, EPI, -0.2%
Bank Services, FISV, -1.2%
Credit Service, NNI, -0.55
International Discretionary, IPD, -0.4%
International Utility, IPU, -0.0%
Russell 2000, IWM, +0.6%
Nasdaq Internet, PNQI, 0.9%
Consumer Discretionary Small Caps, XLYS, +0.6%
Home Building, ITB, +0.7%
Canadian Small Caps, CNDA, +1.2%
Japan Small Cap, JSC, +1.3%
Small Cap Pure Growth, RZG, +0.9%
Small Cap Pure Value, RZV, +1.2%
Small Cap Pure Value shares relative to Small Cap Pure Growth shares, RZV:RZG, closed up at 0.789
Solar, TAN, +2.0%
Small Cap Energy, TRGL,
Small Cap Energy, AXAS
Small Cap Energy, GPOR
Small Cap Energy, AEZ
Small Cap Energy, FPP,
Small Cap Energy, XLES, +1.8%
Chart of FPP, TRGL, AXAS, GPOR, AEZ
Taiwan, EWT, +1.0%
Junior Gold Mining, GDXJ, +2.3%
Gold Mining, GDX, +1.8%
Silver Mining, SIL, +2.8%
Exploratory silver mining company, Silver Standard Resources Inc, SSRI, +4.8%
The chart of the junior gold mining shares relative to gold, GDXJ:GLD, shows the premium that the shares command over gold.
The chart of the HUI precious metals, ^HUI, relative to US 30 Year Bonds, EDV, has gone parabolically higher … $HUI:$USB
Gold Miner, ASA, was one of the gold stocks which rose today; as was Allied Nevada Gold, ANV, New Gold, NGD, Nevsun Resources, NSU, and Agnico Eagle Mines, AEM,
Small Cap Industrial, XLIS, +0.9%
A number of growth and industrial corporations fell lower.
Semiconductor, Entergesis, ENTG, -3.7%
Electronics, Active Power, ACPW, -3.3%
Electronics, Bruker Corp, BRKR, -1.9%
Electronics, Measurement Specialities, MEAS, -1.7%
Industrial, Belden, BDC, -1.4%
Industrial, WHC Corp, WXCO, -1.0%
Autozone, AZO, manifested bearish engulfing and fell 1.3%
C …. Commodities fell 1.2% lower
Commodities, DBC, -1.2%
Timber, CUT, -0.5%
Natural Gas, UNG, +4.0%
Base Metals, DBB, -0.2%
Oil, USO, -0.2%
D … Gold and Silver rose higher.
Gold, GLD, +0.8%
Silver, SLV, +3.1%
E … Total bonds rose higher on rising US Government Bonds
Total Bonds, BND, +0.4%
World Government Bonds, BWX, -0.1%
International Corporate Bonds, PICB, +0.6%
Emerging Market Bonds EMB, +0.4%
Zeroes ZROZ, +2.0%
30 Year US Government Bonds EDV, +1.4%
10 to 20 Year US Government Bonds TLT, +1.4%
3 to 7 Year US Government Notes IEF, +0.4%
1 to 3 Year US Government Notes IEI, +0.4%
1 to 3 Year US Government Notes SHY, +0.4%
Build America Bonds BAB, +1.0%
Municipal Bonds MUB -0.1%. Chart shows these stand the risk of falling massively lower.Martin D. Weiss, Ph. D warns Muni Bond Chaos Imminent
California Municipal Bonds CMF Chart shows these fell 1.8% sharply lower as Joe Wiesenthal of Business Insider reports Arnold Schwarzenenegger Is Going to Announce a Fiscal State of Emergency in California Today.
Junk Bonds, JNK, -0.1%
Longer Maturity Corporate Bonds, BLV, +1.2%
Shorter Maturity Corporate Bonds LQD, +0.7%
F. The 30 10 US Government yield curve rose
A steepening 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX, took the small cap shares, the small cap value shares and the mining shares higher today.
III … Today, November 6, 2010, the Euro Germany empire cracked as the Euro, the European Financials, the European shares and the German shares fell lower.
Charlemagne's successor, the revived Roman Empire, is starting to fall, and in its place, I believe will come, strong European economic governance.
I believe that out of rising sovereign debt interest rates, and further global competitive currency devaluations at the hands of the currency traders, that the eurozone bank sovereign debt symbiosis will implode, and that the European Financial Institutions, EUFN, will quickly fall in value, taking the entire global financial system down, resulting in Götterdämmerung, an investment flame out, bringing forth a new age with a Sovereign-Chancellor, perhaps Mrs. Merkel, or Mr Van Rompuy, and a Seignior-Banker, perhaps Mr Rehn or Mr Trichet, providing fiscal sovereignty, a common EU Treasury, internal country devaluations, and as Timothy Geithner called for, unified regulation of banking globally. All seigniorage, both credit and fiscal, will come and go through the Sovereign. I foresee national sovereignty passing away, as Leaders’ Framework Agreements establish ten regions of global governance as called for by the Club of Rome in 1974.
In such a scenario, I expect the demand for precious metals, JJP, to grow.
Stocks: EUFN, EWG, JJP, GLD, SLV, UUP, FXE, FXF, SZR, FXS, FXY, BRF, DBV, CEW, UBS, CS, HSBC, BCS, ING, RBS, DB, BNPQY, SAN, BBVA, EWI, EWP, REPYY, EVO, PLND, EWL, CMF, MUB, BND, DBC, CUT, UNG, USO, EWZ, EWJ, EZA, ACWI, EWD, WBK, EWA, EWY, SKOR-OLD, ENZL, INP, SCIF, EPI, NICK, QABA, EMFN, EPHE, VNM, EPP, AUSE, COPX, OI