I … Carry traders went long the Euro, FXE, and short the Yen, FXY, causing Oil, USO, base metals, DBB, natural gas, UNG, the European financials, EUFN, and stocks in general to rise; but they trimmed gains in early afternoon trading to close mostly lower as Moody’s downgraded Greece, reported Caroline Valetkevitch of Reuters.
Gold, GLD, fell 0.3% on volatility; the HUI precious metal mining shares continued to disconnect from the price of gold and fell almost 2% — a process than began May 12, 2010.
II … Commodities gaining included:
Natural Gas, UNG, 5%
Base Metal Commodities, DBB, 2%
Oil, USO, 0.5%
III … Stocks of note traded as follows:
Ireland, EIRL, 8%
Poland, PLND, 3%
Italy, EWI, 2.5%
European financial EUFN, 2%
Europe, FEZ, 1%
Pacific Excluding Japan, DNH, 1%
Small Cap Pure Value, RZV, 1%
Real Estate, IYR, 1%
Russell 2000, IWM, +0.5% (closed at 65.35)
Semiconductors, SMH +0.5%
Dow, DIA – .2%
S&P, SPY – .2%
NASDAQ, QQQQ, broke even.
IV … Today, Monday June, 14, 2010 marks a day that will live in investment infamy: Not only has the European Sovereign Debt crisis intensified; but also, the world entered into global debt deflation as world stocks, VT, and US Treasuries, IEF, TLT and ZROZ, turned lower on the announcement of Moody’s downgrade of Greece debt to junk.
World stocks, VT, turned lower today to close at 40.43; with 40.50, 41.00 and 41.50 providing strong resistance.
Spain, EWP, closed 0.5% lower on rumors of a European bail out as reported by EuroIntelligence in article German media report: EU to prepare bail out Spain
Brazil shares, EWZ, fell 1%, as the Brazilian Real, BZF, failed during the day manifesting a massive lollipop hanging man candlestick; click on chart of BZF to enlarge.
The chart of the Russell 2000, IWM, shows a gap open higher on today’s yen carry trade investment; but then gradually sold off as news of the Greece debt downgrade settled-in.
British Petroleum, BP, closed at 30.67; if it does not pay a dividend, I do not consider it to be “a going concern”.
The US Treasuries, IEF, TLT, and ZROZ, fell lower as debt deflation manifested in the US Government bonds; the chart of the US 10 year Government Note, IEF, shows a massive dark cloud cover candlestick. The US Dollar Bull ETF, UUP, and the US Dollar, $USD have turned parabolically lower. The days of finding safe haven investment in the US Treasuries are over. The age of debt deflation features competitive currency, stock and debt deflation, with investors finding safe haven in gold. Click on the following charts to enlarge:
Chart of the US Dollar, $USD
Chart of IEF
Chart of UUP
Aggregate debt, AGG, rose on today’s euro yen cross. It topped out on June 7, 2010 as did all of the US Government debt.
Investment Grade Corporate Bonds, LQD, peaked out in early May and turned parabolically lower today.
The chart of the Direxion 3x bear 30 Year US Government Bond, TMV, shows an “Elliott Wave 3 of 3 Up” commencing; click on chart of TMV to enlarge.
The Euro, FXE, closed at 120.57, culminating a 6 day rally. The Mood’s downgrade presents a significant challenge to the currency traders run in the EUR/JPY, which had stimulated investment in base metals, DBB, oil, USO, natural gas, UNG, as well as stocks.
Of the commodities, perhaps, natural gas, UNG, can still go higher, in as much as it has been so terribly depressed; but then again, perhaps, the recent rise has just been yen carry trade speculation.
Joe Weisenthal’sl Business Insider report that the Ted Spread, the key metric of bank health, is surging (the Ted Spread $TED, rose to 0.486), presents a challenge to European Financial stocks, EUFN, rising higher.
Strike 3 says Bespoke Investment Group: One could go short at this time with a selection of ProShares 200% bear market ETFs such as found in this Finvis screener: SRS, SJH, SSG, EEV, SMN, SMK, BZQ, SIJ, EPV, FXP, SCO, JPX, BOM
Click of chart of SJH
Debt deflation is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
John Hara provides the details of debt deflation in article Into The Abyss: The Cycle Of Debt Deflation posted in Gold Speculator as well as posted in 24HGold; and as he does, he describes the entrance into Kondratievv Winter.
In the age of debt deflation, I recommend gold, GLD; personally I am invested in gold coins; another reason is the potential for risk of custodial loss of funds in money market accounts and at brokerage accounts. Custodian Loss is the risk of loss of securities held in custody, or loss of part of the value of said securities, occasioned by the ill-liquidity, insolvency, negligence or fraudulent action of the custodian or counter-party. I perceive that a liquidity evaporation could occur at any, where one may not have full and immediate access to ones funds when there is a large number of sellers of investments and only a handful of buyers. A liquidity evaporation could easily happen in an environment where the US Federal Reserve has little, if any reserves.
Tyler Durden reports in US Treasury Rolls $284 Billion In Bills, $316 Billion In Total Debt In First 10 Days Of June, Cash Balance Down To $4 Billion that the US Treasury is once again running on cash fumes, with total US Treasury cash down to $4.3 billion in the Treasury’s Federal Reserve account. The reason: the US Treasury has now rolled $320 billion in total treasuries in the first ten days of the month, or over $11 trillion annualized. All those paying attention to interest paid on US debt are focusing on the wrong thing: the monthly scheduled amortization of principal are now by far a much greater threat to the US Treasury than a couple of percent increase in rates. The short-date sides of the curve is getting progressively larger, contrary to the UST’s previously announced plan to extend the average duration of Treasury debt. After all, why issue 10 Year+ debt and take on auction and interest risk, when courtesy of everybody rushing away from the equity market, the interest in zero interest overnight maturities is virtually infinite. .. Unless, of course, you are Spain, where the interest is the opposite of infinite.
Disclosure: I am invested in gold coins