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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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  • 3.5 Million Squatters Live Payment Free As Banks Exercise Their FASB 157 Entitlement And Decline To Foreclose 0 comments
    Aug 17, 2010 7:53 PM | about stocks: THD, DBV, BND, EMB, CEW, FXE, FXY, JNK, DBB, JJT, TMV, TLT, IEF, KBE, XHB, EWV, SJH, EUO, EPV
    Squatters and bankers both benefit from the FASB 157 entitlement.
    Sue McAllister and Eve Mitchell in Oklahoman/McClatchy Tribune article Millions Stay Put, Await Foreclosure Or Help report from San Jose, CA that millions of homeowners are trapped in a bizarre real estate limbo, living in houses but no longer paying for them, waiting and wondering if someone will help them — or throw them out. Some 3.5 Million squatters are now living payment free as the banks are unwilling to foreclose and take a loss on their books, exercising their FASB 157 entitlement and mark the property to managers best estimate rather than mark the property to market.
                                                                                                                                                                                                                
    FASB 157 is the foundation that enabled the Federal Reserve to proceed with its QE program that traded out 1.2 Trillion and accepted in every kind of toxic debt, like those in Fidelity Capitol and Income mutual fund FAGIX. And in so doing the banks, KBE, and the too large to fail financial institutions, RWW,  were capitalized at taxpayer expense, and the overall stock market, VT, was kept from collapsing, at least temporarily. There was a major benefit to the bankers in that they were nationalized and integrated with the US Federal reserve, effectively creating a new form of government, that being state corporatism. The gains of this bloodless coup were privatized to the banks and insightful traders who went long the banks, KBE; the losses were socialized to the taxpaying public.  
     
    Currency traders sold out of their carry trades on April 26, 2010 and again on August 11, 2010.
    On April 26, 2010, the currency traders went short the major currencies and the emerging market currencies, while sustaining the Yen, causing stocks to fall world-wide. There was a European Financials Stress test rally from June 10, 2010 to August 11, 2010, but stocks again sold off  as currency carry trades such as the EUR/JPY.
                                                                                                                                                                                                               
    Stocks will fall massively lower soon; and banks will commence a new business plan, that being property leasing.
    Once there is a liquidity evaporation stemming from a fast sell off the current sizzling hot US Ten Year Notes, IEF, and the 20-30 US Government Bonds, TLT, due to rising interest rates, ^TNX and ^TYX, or once the Euro, FXE,  falls below 127, then the European Financials, EUFN, and banks, KBE, and financials, XLF, will fall significantly, causing European stocks, FEZ, world stocks, VT, and the Russell 2000, IWM,  to fall significantly as well.
     
    Once this happens, banks will become ever more stock market decapitalized, and will turn to foreclosing and leasing properties, as credit and lending becomes non-existent, and as their FASB 157 entitlement and lifeline of support fails to sustain their ability to stay in business: yes a new business model is coming to banking, that being property management on behalf of government. 
     
    Financial market report for August 17, 2010.  
                                                                                                                                                                                                                                   
    The yield curve, $TYX:$TNX,  flattened a tiny amount after manifesting a dark cloud cover at 1.455 and falling to 1.425.
     

    The interest rate on the 20 to 30 Year US Government Bond, $TYX, rose less than the interest rate on the 10 year note, $TNX, as seen the chart of combined chart of ^TYX and ^TNX – +1.3% and +2.7%
     

    TLT
     fell more than IEF, – -.6% and -.5%.  TMV  rose more than  TYO – +2.2% and 1.3% as is seen in Yahoo Finance TMV to TYO. I have written that the dramatic recent rise in Government debt presents systemic risk as recent buyers may run to the exit doors and there may not be enough buyers for sellers resulting in a liquidity crisis. Currently the GSEs are nationalized in all but writing; perhaps today is the day that investors will come to the realization that with their debt, the US Debt to GDP is not 90% but actually 140%.
     

    The cause of today’s fall in bonds, BND, came from the currency traders going long the Euro Yen carry trade, EUR/JPY, to keep the Euro, FXE, from falling below 127. And they also went long the Canadian Dollar carry trade, FXC:FXY, and the Australian Dollar, carry trade, FXA:FXY, as they invested in base metals. This being seen in the chart of base metals, DBB, causing Tin, JJT, copper, JJC, Lead,  LD, Nickel, JJN, soaring in value. The three white soldiers and a dark cloud cover in the chart of Tin, JJT, suggests that the rally is likely over. Asia shares, DNH, which move, with commodities, rose strongly. The European Financials, EUFN, rose strongly on the higher Euro, FXE which induced Financials, XLF, and the Russell 2000, IWM, and the small cap value shares, RZV, to rise 2.8%. Metal manufacturing, XME, rose 2.8%, Homebuilders, XHB, 2.7%, Material stocks, XLB, 2.4%, and industrial stocks, XLI, 1.7% on the rising base metal prices. The speculation in base metals, caused Junk Bonds, JNK, to rise. Junk Bonds, are an excelling short selling opportunity as seen in this chart, they have the potential to fall to 36.00 very quickly. Emerging market bonds, EMB, rose on the higher emerging market currencies, CEW.  This chart of EMB shows the spectacular fall potential, given the early May 2010 fall in value, and the fact that emerging market bonds have risen on an ascending wedge since late May 2010. The slight fall in the yen, FXY, caused Japan shares, EWJ, to rise, resulting in a fall in the 200% inverse EWV which is also seen here in this chart. The rise in the Russell 2000, IWM, caused a fall in the 200% inverse of the Russell 2000 Value shares, SJH, to its 50 day moving average.
     

    The rise in the Euro, FXE, to 128.34, brings it back up to the middle of a broadening top pattern established July 22, 2010. And 129.30 represents strong resistance. Setyo Witoyo relates: “If we look at the daily chart, actually price still making lower highs and lows and we must have at least a new higher high to see further recovery.” Perhaps one might enjoy my chart analysis of 15 ETFs to sell short and 7 ETFs to buy long for a debt deflationary bear market where I highlight 200% inverse of the Euro, EUO; today’s fall to 22.33 made for a safe entry point to take advantage of the coming fall in the Euro, FXE. And today’s fall in 200% inverse of the European shares, EPV, was another opportunity to go short the European shares by investing in EPV.  
     
     
    The weekly chart of the major currencies, DBV, compared with the emerging currencies, CEW, DBV:CEW, shows a value of 1.029 reflecting the currency traders “state of depression” about the major currencies.
     

    I believe the depression of major currencies relative to the emerging currencies will increase, based upon the large amount of sovereign, corporate and personal debt in the developed countries, compared to the emerging markets. Thus, causing the DBV:CEW value to fall below its current 1.029 level, which would cause the european shares, FEZ, and the asian shares, DNH, to sell off faster than the emerging market shares, EEM. Countries like Chile, ECH, and even more so Thailand, THD, are likely to maintain their value better than Spain, EWP, Austria, EWO, Ireland, EIRL as better performers in competitive currency deflation.
     

    Yet all, that is all currencies are going into the pit of financial abandon, albeit at differing rates as Debt Deflation commenced April 26, 2010 when the currencies traders sold the currencies against the Yen and the US Dollar rose in value, only to fall later on June 10, 2010 when the EFSF Monetary Authority was announced. Debt Deflation has been taking currencies, DBC and CEW, stocks, VT, and commodities, DBC all lower since April 26, 2010; yet as can be seen in this chart of DBC, CEW, DBC and BND, that bonds have as of yet to deflate ever since they broke out when debt deflation came to currencies and commodities. Soon debt deflation will come to bonds as well. Then all fiat assets will fall into the pit of financial abandon together; while gold, seen in this chart broke out August 6, 2010 rising from $1,200 has arisen to be the world’s sovereign currency and storehouse of investment value.        


    Disclosure: I am invested in gold coins
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