Monday June 2, 2014, marked an inflection point in world economic history, as Credit Investments traded lower, as currency traders sold the Japanese the Japanese Yen, on realization of The Failure Of Abenomics: Domestic Sales Collapse, Inflation Soars, Tyler Durden reports. Investors fear that the monetary policies of the world central banks have crossed the rubicon of sound monetary policy and have made "money good" investments, particularly credit investments, bad; resulting in a strong trade lower in Bonds.
The lower Japanese Yen, FXY, stimulated Nation Investment in Japan, EWJ, JSC, and in Far East Financials, FEFN, to trade higher. And currency traders sold the Brazilian Real, BZF, which stimulated Brazil, EWZ, EWZS, and Brazil's Energy Company, PBR, Home Builder, GFA, and Airlines, GOL, to trade lower.
Seeing US Government Debt, that is the US 30 Year Goverment Bonds, EDV, and the US Ten Year Notes, TLT, overvalued, the bond vigilantes called the Interest Rate on the US Ten Year Note, ^TNX, higher above 2.49% to 2.53%, and steepened the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, as is seen in the Steepner ETF, STPP, steepening, and the Flattner ETF, FLAT, flattening.
Risk-on investing turned to risk-off investing. There was a credit market upheaval on June 2, 2014, as the ascending wave of credit that defined the paradigm and age of liberalism reversed. A review of Popular Notes And Bonds, shows Eurozone Credit, EU, Junk Bond, JNK, Global Junk Bonds, HYXU, Longer Duration US Corporate Bonds, LWC, US Corporate Bonds, LQD, International Corporate Bonds, PICB, Emerging Market Local Currency Bonds, EMLC, Emerging Market Bonds, EMB, Mortgage Backed Bonds, MBB, 30 Year US Government Bonds, EDV, US Treasuries, TLT, Municipal Bonds, MUB, and World Government Bonds, BWX, traded lower, on the failure of trust in the world central banks' monetary authority. Bond Trader Across The Curve posts There was real money selling today and the street had no capacity to absorb it.
Philip Lane posts in Irish Economy Joint BoE/ECB Paper On Reviving The European ABS Market. Versions of QE depend on a well-functioning ABS market and this joint paper outlines the various reforms required for this market to operate at a sufficient scale ECB PDF Document Presented Here.
To the dismay of Austrian economists, the world has operated on a debt based money system. Since 1971, at the encouragement of Milton Friedman, investment in sovereign currencies has sustained Nation Investment and Small Cap Nation Investment, EFA, largely through the endeavors of Global Financial Institutions, IXG; all of which sustained Yield Bearing Investments such as the International Dividend DOGS, IDOG, and International Telecom, IST.
Since 1971, when the US went off the gold standard, floating currencies have been the wheels upon which the global economy has operated.
With the trade lower in Major World Currencies, DBV, in May 2014, and now with the trade lower in Credit, AGG, in June, 2014, fiat money, defined as the combination of the two, is starting to die.
The sawing asunder of fiat wealth, coming from the bond vigilantes in calling the Benchmark Interest Rate, ^TNX, higher from 2.49%, will soon commence the start of Kondratieff Winter, the final phase of the Business Cycle.
Under the paradigm and in the age of liberalism, meaning freedom from the state, Global ZIRP produced the investor, as the centerpiece of economic action, driving up Risk Assets, such as Small Cap Pure Value, RZV, as well as Global Growth and Trade Assets, such as Energy Service, OIH.
Beginning in May, 2013, the bond vigilantes, not the world central banks, have been setting the Benchmark Interest Rate, ^TNS, and in calling it higher above 2.49 % to 2.53%, have terminated the investor as the centerpiece of economic activity, and have introduced the new paradigm and age of authoritarianism, where the debt serf is the centerpiece of economic action.
There no longer be any human action as perceived by the Austrian economists, there is only the destructive action of the bond vigilantes, as they have full control of the Bow of Economic Sovereignty, that is the Interest Rate on the US Ten Year Note, ^TNX, and are calling it higher in effecting global coup d etat transferring the world out of the paradigm of and age of liberalism, meaning freedom from the state, and into that of authoritarianism.
The bond vigilantes are literally busting apart the sovereignty of the Banker Regime of world central banks and democratic nation states. Out of its ruins, the Beast Regime of regional governance and totalitarian collectivism will rise to rule the world, establishing regional fascism in each of the world's ten regions and totalitarian collectivism in the world's seven institutions.
The age of Disney, and its Magic Kingdom, as well as the age of fixed income investing ended June 2, 2014, with the Interest Rate on the US Ten Year Note, ^TNX, rising above 2.49% to 2.53%.
Martin Frost writes Today, we are faced with another Kondratieff Winter (depression) when the majority of the world anticipates economic expansion. Each individual needs to weigh the risk of depression in light of Kondratieff's work.
The bond vigilantes effected a historic global economic coup d'etat on June 2, 2014, by calling the Interest Rate on the US Ten Year Note, ^TNX, higher above 2.49% to 2.53%. Liberalism's dynamos of economic activity, creditism, corporatism, and globalism, failed on June 2, 2014, with the result that inflationism has turned to destructionism.
As investors derisk out of debt trades, and delverage out of currency carry trades, regionalism will be the new dynamo of economic activity establishing the paradigm and age of authoritarianism, whereby out of soon coming Financial Armageddon, that is a global credit bust and financial breakdown, leaders will meet in summits to renounce national sovereignty and announce pooled regional sovereignty to establish regional security, stability and sustainability.
US Government Debt is no longer a safe haven investment. The rally in Bonds, BND, that started in January 2014, cane to an end on June 2, 2014, as the longer duration US Government Debt Debt, EDV, are now starting to sell off faster than the medium duration US Government Debt, TLT, this seen in the ratio of EDV:TLT, trading lower. Bonds, BND, and US Treasuries, TLT, are no longer safe assets.
The death of currencies commenced in May 2014, as is seen in Major World Currencies, DBV, such as the Euro, FXE, the British Pound Sterling, FXB, the Swiss Franc, FXF, and the Swedish Krona, FXS, trading lower. And, the failure of credit commenced in June of 2014, as is seen Aggregate Credit, AGG, trading lower.
Credit Investments failed on June 2, 2014, as the Japanese Yen, FXY, traded lowe on the failure of Abenomics; confirmation comes from Convertible Securities, CWB, trading lower, and Floating Rate Notes, FLOT, trading lower from its late May 2014 high. Investors no longer trust in the monetary policies of the world central to provide investment gains and stimulate global growth.
The higher Benchmark Interest Rate ^TNX, put an end to risk-on investing, and thus stimulated Social Media, SOCL, Internet Retail, FDN, Nasdaq Internet, PNQI, Cloud Computing, SKYY, and the credit sensitive Small Cap Pure Growth, RZG, and the Small Cap Pure Value, RZV, to trade lower, and as a result the US Small Cap Stocks, IWM, IWC, traded lower on the day.
Eurozone Credit, EU, traded lower as Zero Hedge posts Here Comes QE In Financial Drag. David Stockman via Contra Corner blog relates the WSJ report The ECB And Bank of England Outline Options to Boost Asset-Backed Securities Market. The European Central Bank and Bank of England on Friday outlined options to reinvigorate the market for bundled bank loans, which was "tarnished" by the global financial crisis, saying a better-functioning market for asset-backed securities can help boost lending to the private sector, particularly small businesses.
Yes, the ECB is now energetically trying to revive the a market for asset-backed commercial paper (OTCPK:ABCP) - the very kind of "toxic-waste" that allegedly nearly took down the financial system during the panic of September 2008. The ECB would have you believe that getting more "liquidity" into the bank loan market for such things as credit card advances, auto paper and small business loans will somehow cause Europe's debt-besotted businesses and consumers to start borrowing again thereby reversing the mild (and constructive) trend toward debt reduction that has caused euro area bank loans to decline by about 3% over the past year. What they are really up to, however, is money-printing.
Here's the thing. The ABCP market is not a place where hard-pressed business borrowers or consumer's can find a new source of credit outside the banking system. Instead, it is a financial engineering arena in which banks will have a chance to mint phony overnight profits through an accounting expedient known as "gain-on-sale".
What that means is that when credit card receivables or small business loans are "bundled" by their commercial bank issuers and sold into an off-balance conduit which issues ABCP against these "assets", the life-time profits of these loans can be booked instantly. Indeed, modern technology allows the credit card swipe to be booked as a profit nearly the same nanosecond as it happens, and accounting convention allows the profits from a 7-year car loan issued at 110% of the vehicle's value to be recorded virtually at the time it rolls off the dealer lot.
In short, Europe has more than enough inflation and doesn't need a revived ABCP market to generate loans for the un-creditworthy. Today's announcement is just part of Draghi's desperate attempt to deliver QE next week in a manner which will not elicit a loud "nein!" from his German overseers.
Jenny Cosgrave of CNBC reports Eurozone Manufacturing Growth Slowest In 6 Months
Premium REITS, KBWY, such as Retail REITS, SLG, GGP, Residential REITS, such as EQR, AVB, ESS, AIV, MAA, Global Infrasturce, IGF, such as MIC, Industrial Office REITS, such as BXP, STWD, Hotel REITS, such as CHSP, HST, SOHO, Regional Banks, KRE, such as SNV, HBAN, FITB, OZRK, EGBN, and Chinese Financial, CHIX, traded higher in short sell covering. Base Metals, DBB, traded higher, stimulating Global Miners, PICK, slightly higher.
A review of the Leading S&P 500 Companies, shows that the S&P 500, SPY, and Transportation, XTN, led by Delta Airlines, DAL, and Disney, DIS, and Energy Service, OIH, and Global Industrial Producers, FXR, led by Halliburton, HAL, and Illinois Tool Works, ITW, traded to a new all time high on a slightly lower price of Oil, USO.
Arin Ray of Celent posts Big Banks Exit Commodity Trading The retreat of the big banks from commodity business has been driven by tighter regulation, stricter capital requirements, increasing political pressure and lower profitability in recent times.
On June 2, 2014, the Inverse Market ETFs, as a group, traded higher; these include XVZ, STPP, EUO, YCS, CMD, DNO, MLPS, SAGG, DTYS, JGBS, GLD, GYEN, GEUR, GGBP, HDGI, YXI, EUM, DOG, SEF, EFZ, DDG, PSQ, REK. These could be used selectively and under wise management to serve as the basis for collateral in a short selling investment strategy.
The sell of the Yen, FXY, on the failure of the Abenomics, as well as strong sell of Junk Bonds, JNK, is a wake up call to stirring investors out of their complacency, that the monetary policies of the world central banks no longer underwrite profitable investment.
The short selling opportunity of a lifetime occurred on June 2, 2014.
Joseph Ciolli and Lu Wang of Bloomberg reports Records Get Stale With S&P 500 Volume At 6 Year Low. "Breadth is suggesting that the market is topping," Miller, the Boston-based head of multi-asset allocation for Baring, said in a May 28 telephone interview. "This is not a good starting point for buying equities at this price. We all know that investors are induced into risk assets by central bank policies, which keep your safer options very unattractive." Exchange-traded and mutual funds that buy U.S. shares saw $1.2 billion in outflows this quarter, while bonds received $34 billion, data compiled by Bloomberg and the Investment Company Institute show. The gap is poised to be the largest since September 2012.
Volatility on the MSCI All-Country World Index, which tracks stocks in both developed and emerging markets, dropped to 5.33 on May 28, its lowest level since 1996, according to 30-day historical data compiled by Bloomberg. The Chicago Board Options Exchange's Volatility Index, known as ^VIX, closed below 12 for the five previous days, the longest streak since 200