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European And Bank Shares Fall Lower While Stocks Rally On A Lower Yen … Treasuries And Debt Seen Topping Out

|Includes:ACWI, iShares Core Total U.S. Bond Market ETF (AGG), ANH, AUSE, BP, BZF, DBV, EPV, EWA, EWZ, FXA, FXE, FXI, FXY, GLD, IEF, IYM, KBE, SOXS, TLT, TMV, TZA, VT

I …  Pan Pylas of The Associated Press reports that the Bank of Japan has concerns over the higher Yen:  Earlier in Asia, most stock markets advanced, with Hong Kong’s Hang Seng index up and mainland China’s Shanghai index spiked 2 percent. However, Japanese shares retreated following a three-day weekend as investors continued to fret about the implication on exports from the big rise of the yen against the dollar over recent weeks. A higher yen will make Japan’s exports more expensive, all other things being equal, in the American marketplace.

Mr Pylas continues: Michael Hewson, an analyst at CMC Markets, said the risk is that the dollar could soon fall below last year’s yen low of 84.80. “This would present the Bank of Japan with a decision of whether or not to intervene in the markets, something they haven’t done since 2004, to weaken the yen as their exporters become less competitive,” said Hewson. By early afternoon London time, the dollar was up 0.2 percent at 86.95 yen while the euro fell 0.6 percent at 1.2863.

Mr Pylas adds: State-owned German bank Hypo Real Estate Holding AG has failed continent-wide bank stress tests, results of which are due this Friday. “As news of the first casualty of the EU bank stress tests was reported, the market appears to be questioning whether tensions in the eurozone have eased sufficiently to justify gains for the euro above $1.30,” said Jane Foley, research director at

II .. Grant McCool of Reuters relates that Fabrice Tourre wants his case dismissed: Goldman Sachs executive Fabrice Tourre denied fraud and other accusations by U.S. regulators for his role in marketing a subprime mortgage product and asked a court on Monday to dismiss the case. Goldman on Thursday agreed to pay $550 million to settle civil fraud charges brought in April by the U.S. Securities Exchange Commission, which said it planned to continue its lawsuit against Tourre, a Frenchman accused of putting the product, known as “Abacus 2007-AC1″ together. In a filing on Monday with the U.S. District Court in Manhattan, Tourre’s lawyers said he “cannot be held liable for any misrepresentations or omissions that he did not make.”

The response of Tourre, currently an executive director of Goldman Sachs International in London, also denied SEC allegations that hedge fund Paulson & Co played a significant role in the selection of the product’s portfolio. “The purported claims against Mr. Tourre and the allegations upon which they are based are improperly vague, ambiguous and confusing, and omit critical facts,” the court document said.

On Thursday, the SEC said the $550 million Goldman would pay, still subject to the approval of a federal judge in New York, was the largest ever for a financial institution. Many investors viewed the settlement as only a slap on the wrist for a bank that earned more than $13 billion last year.

III … European and bank shares fall lower as overall stock market rises on a lower Yen. 

European shares, FEZ, fell 0.4% on the Assoicated Press report that state-owned German bank Hypo Real Estate Holding AG has failed continent-wide bank stress tests, results of which are due this Friday.Click on chart to enlarge.


Institutional investors should now have some shorts in the ProShares 200% inverse of Europe, EPV, in anticipation of disappointing results from Friday’s European Financial, EUFN, stress tests. Click on chart to enlarge.


SanDisk, SDNK, shares fell early in the morning before recovering, taking, semiconductors, SMH 0.6% lower. The Nasdaq, QQQQ, which was off early in they day, recovered. Yesterday, I recommended SOXS for institutional investors, and continue to do so today.  

Basic material shares, IYM, fell lower early in the day; but then recovered and moved up 3.1%, as base metals soared from their ”break open higher”, as can be seen in the chart of EUR/JPY, EURJPY,  and DBB. It was simply a case of the stocks following the commodities. Both the Asian shares, DNH, China shares, FXI, rose on the higher Australia dollar, FXA, and on the higher basic materials, IYM.

Chart of EUR/JPY. Click on chart to enlarge.

Chart of DBB; Click on chart to enlarge.

IBM and JNJ fell on disappointing earnings and could not recover. The Dow, DIA, which fell early in the day recovered. 

Banks, KBE, fell, taking the S&P, SPY, lower in the morning. But it recovered to post a gain, as did the Russell 2000, IWM.

The overall stock market, VT, also traded by ACWI, recovered from today’s early morning losses to close with a 1.2% gain. 

Today was simply a rally, caused by a falling Yen, FXY, in a debt deflation bear market that began April 26, 2010; and which recommenced July 13, 2010 when bank shares, KBE, fell lower once again. The chart of banks, KBE, communicates the irretrievably broken nature of America’s lending institutions.  And the chart of the too-big-too-fail-banks, RWW, shows these large institutions to be beyond salvage.  The truth be told, these giants are integrated into the government which one day will be the first, last and only lender of resort.  

Off all the markets, that is QQQQ, DIA, SPY, and IWM, the Nasdaq, is in the best shape; that is what makes investing in SOXS, such an appealing investment for institutional investors. Because IWM has been and will continue to be the fastest decapitalized by debt deflation, TZA is the overall best short selling opportunity. And today’s 5.2% drop in TZA presented a good opportunity for institutional investors to add to their shorts.

IV … The Euro fell lower … and the world currencies rose against the Yen.

The Euro, FXE, fell 0.4% to close at 128.49. Click on chart to enlarge.

Click on chart to enlarge

World currencies, DBV, rose against the Yen, FXY, which fell 0.7% to close at 113.25.  The US Dollar, $USD, rose 0.3% to close at 82.77. World currencies turned down on Thursday July 15, 2010 from 22.83; and closed up today at 22.55.

The Yen, FXY, is at a decision point: it is either moving up to and possibly beyond its recent high; or down. I believe it has topped out and/or that it will bounce up to its former high; and will soon be moving steadily lower as well, as global debt deflation takes all currencies, albeit at varying rates, lower and lower. There is nothing any country can do about the value of its currency, well perhaps with the exception of China as it has such great FX Reserves. The only thing the BoJ can do is jaw bone and encourage currency traders to do something. Click on chart to enlarge.

Last night someone took action, as currencies traded today as follows: FXA +1.5%, BZF, +1.2%, BNZ, +1%, FXC, +0.9%, SZR +0.9%, FXM, +0.7%, XRU, +0.4%, FXF, +0.3%  … resulting in the Euro, FXE, down 0.4% and the Yen, FXY, down 0.6%. One can view these currencies in this Finviz Screener.  

The rise in the Aussie, FXA, caused Australian shares, EWA to soar 3.4%.

And the rise in the Real, BZF, caused the Brazil shares, EWZ, to rise 3.3%.

The BRICs, EEB, rose 2.4%

The plea for help brough some correction to the very profitable Swissie Aussie carry trade which broke out of a consolidation triangle on June 28, 2010.

V … Debt is topping out … The “end of credit is near”!!!!!

The 10 year US government note, IEF, manifested a hammer, after yesterday’s harami. Hammers are just that, a instrument which secures something in place. The rise in the value of the Ten Year got hammered! Click on chart to enlarge.

Aggregate, AGG, got stopped out today, after manifesting a harami yesterday.

The 20 to 30 year US government bond, TLT, manifested a harami, smack dab in the middle of a high made two days ago; which was the third of three white soldiers marching to a completion high. Also note the previous three white soldiers and a light hammer. This is a picture perfect reason for going short here. How many more signals could the investor ask for as reasoning to go short? Click on chart to enlarge.

The chart of mortgage-backed securities investment provider, Anworth Asset Mortgage, definitely shows a topping out pattern: all I can say is that the end of credit is coming soon, and when it does, ANH is going to fall like a rock. I give this company great kudos for the job it has been doing; but when funding runs out for the GSEs from the US Treasury, it is going to experience a great deleveraging.

The Direxion 300% inverse of the 30 Year US Government Bond, TMV, sits on the launch pad ready to move continually and slowly higher.

The yield curve, $TYX:$TNX, rose, repeat rose, as the 30 Year interest rate, $TYX, fell less than the 10 Year interest rate, $TNX.

The rate on the US Ten year note, $TNX, fell to a new cycle low at 2.932%

Currently the Federal Reserve pays 25 bps interest on the so-called “excess reserves”, which came via the TARP facility where banks traded out toxic debt for US Treasuries, which capitalized their balance sheets from March 2, 2009 through March 29, 2010.  The Federal Reserve facility of Quantitive Easing had little to do with effective and lasting capitalization of banks. It had everything to do with a financial coup that swapped out toxic debts at banks for valuable US Treasuries, which the banks immediately put on Reserve with the Fed and did not loan out. So the banks, especially the too big too fail banks like Bank of America and Citigroup are now being market decapitalized and are now once again leading the markets and especially the small capitalized US Companies, that is the Russell 2000, IWM, lower into the pit of financial abandon. The Federal Reserve policies have created a monster of state corporatism, where the largest financial institutions are simply an extension of government. And it is significant to note that now that US Government bonds are topping out, many banks would like to sell the Treasuries on Reserve, that will be depreciating; but are unlikely to move the bonds out of the Fed’s keeping; so this will exasperate the bank’s plight.     

The chart of gold, $GOLD, relative to the 30 year US government bond communicates that it is time to trade out of government bonds and invest in gold. Click on chart to enlarge.

Gold has risen to be the world’s sovereign currency and storehouse of investment value.  

A word of warning on gold, $GOLD: its chart shows that it could easily fall from its current trade of $1,190 to $1,160 and $1,140 as it does have carry trade investment that could easily be withdrawn at any time; and as it has a way of falling to its 200 day moving average before moving higher. 

VI … The Obama administration handling of the Deepwater Horizon Disaster involving British Petroleum, BP, and Transocean, RIG, with the sale of BP assets to Apache is a travesty of justice that has established the North American Continent as a region of global governance along the vision of the Security and Prosperity Partnership, the SPP, which was announced by the triumvirate of leaders at Baylor University on March 23, 2005.

Tyler Durden reports Goldman Sachs Is Lead Advisor On Apache Purchase Of $7 Billion In BP Assets where he quotes from  The Apache Press Release: “Apache to Acquire BP Assets in Permian Basin, Canada and Egypt For $7 Billion: Legacy assets complement existing operations in all three areas. Adds proved reserves of 385 million barrels of oil equivalent and approximately 83,000 boe per day of production.  Substantial development opportunities and additional resource potential. Apache’s financial advisors for these transactions were Goldman, Sachs & Co., BofA Merrill Lynch, Citi and J.P. Morgan.”

The Obama administration in allowing the investment bankers to sell BP’s assets has forsaken national sovereignty over BP’s assets; the sale proceeds of the assets should have been sequestered for resolution of environmental, personal, corporate and national loss. And the Obama administration in allowing the sale, has inetgrated
government authority with the institution of banking and also that of commerce creating a monster of state corporate rule on a continental basis. The enablement of the sale of BP’s assets suggests a future use of the resources in the case of a continental emergency.
Yes, all of the $7 Billion in sale proceeds should have been turned over immediately to the US Government. Chart of BP.

Detailed coverage of  the how the SPP effectively created a continental homeland and region of global governance is found in the article The Security And Prosperity Partnership Of North America Puts Natural Resource Investments At Risk For Expropriation

Disclosure: I am invested in gold coins