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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 currency deflation has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation. The chart of gold, $GOLD, reveals that with... More
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  • The European Bond, Currency And Stock Crisis Is Returning 0 comments
    Aug 26, 2010 7:44 PM | about stocks: EWG, EWO, EWK, EIRL, EWP, FXE, EUFN, EPV, EUO, DBB, BOM, EMB, BIS, JJT, SJH, INP, BRF, EPU, ECH, THD, GXG, SMK

    I … The Peripheral European Bond Spreads Are Back To Pre-Crisis Levels, After The Irish Downgrade BY S&P.

    EuroIntelligence relates today August 26, 2010 that the European Bond market crisis is returning after the downgrade of Ireland by S&P. After the downgrading of Ireland by S&P, Irish sovereign bond spreads rose from 318bp to 344bp to level higher than before May, and even Greece spreads are now back at close to 10%, the level before the agreement on the EFSF. This means that the European rescue package have failed to calm down the market stress that triggered on those package in the first place.

    II … The Euro, FXE, Has Been In A Downward Channel Since August 10, 2010 When The European Financials Stress Tests Were Completed And The Banks Reported Good Earnings.

    ActionForex in EUR/USD Daily Outlook for August 26, 2010 relates that the decline is treated as correction to long-term up trend and will target 1.1639 support after taking out 1.1875 low.

    ActionForex in EUR/JPY Daily Outlook for August 26, 2010 relates that the long-term down trend from 2007 high of 169.96 and is still in progress. Break of 107.30 confirms that such down trend has resumed and should target 61.8% projection of 169.96 to 112.10 from 139.21 at 103.45 which is close to 100 psychological level after taking out 107.30 low. Though, we’d expect strong support between 2000 low of 88.96 and 100 psychological level to contain downside and bring reversal.

    TheYenGuy’s chart of FXE:FXY Daily suggests further debt deflation in the Euro, FXEis likely as the currency traders are unrelenting in selling the euro yen carry trade. An Elliott Wave 3 of 3 down developed in the FXE:FXY, the euro yen carry trade, on August 10, 2010 as the European Financials Stress Test ended and the banks reported good earnings.  The 3 of 3 waves are the most sweeping and dramatic of all waves, they create wealth on the way up and destroy wealth on the way down. The current downwave will entirely wipe out the value of the Euro as a currency and leave the banks as tombs to a bygone era of financial excess.  Kondratieff Winter commenced August 10, 2010 when the currency traders sold the major currencies, DBV, and the Euro, FXE, against the Yen, FXY, as the European Financial Stress Test Rally came to an end with most of the banks passing grade and reporting good earnings.  

    III … European Financials Have Been In A Downward Channel Since The Stress Tests Were Completed And They Reported Good Earnings.

    The ongoing Finviz chart of the European Financials, EUFN ….. and the MSN Finance chart of the European Financials, EUFN from May, 10, 2010, to August 26, 2010, show the decline in the European Financials, EUFN.

    IV … Irish Banks Face Difficulties Raising Cash At The ECB, Following S&P’s Downgrade Decision.

    EuroIntelligence reports that back in Europe, Irish banks face tough times raising money after the S&P decision to downgrade Ireland’s sovereign debt. €30bn of government-guaranteed bank debt is due to roll over in September, Bloomberg writes, if the banks cannot refinance on the market, lenders might have to turn to the ECB, which would hurt Ireland’s market reputation, driving up yield spreads even further.  The banks might use collateral bonds issued by NAMA, the Irish version of a bad bank, to get refinancing with the ECB.  NAMA now makes itself headlines in the Irish Independent, as S&P assessed that NAMA will only recover €16bn for the taxpayer on the €40bn it intends to spend in risky property loans from the banks.

    The ongoing Finviz chart of Ireland, EIRL, and the MSN Finance chart of Ireland, EIRL, from May 10, 2010 to August 26, 2010 show Ireland’s loss of stock market value.

    V … Germany Defies The Pessimism, For Now, As The IFO Reaches Highest Level Since June 2007.

    EuroIntelligence reports that the sentiment of German managers has reached the same level as in June 2007. The IFO index went up from 106.2 to 106.7, a near euphoric region, which reflects positive expectations of current and future business conditions. As ever, there are forecasters who predict that Germany can defy a global downturn. Hans Werner Sinn, president of the Ifo institute, says the good mood among industrialised was stable, and likely to persist. The forecasts for Q3 are also very good, though not quite as spectacular as Q2. For more details see Financial Times Deuschland.

    Invest Definition relates that the IFO is a monthly economic report that is issued in Germany toward the end of the month. The IFO surveys over 7,000 companies in Germany to obtain their opinion of the current business situation and asks them to quantify their response by selecting good, satisfactory, or poor and provide their expectations for the future business climate using the same criteria. The index measures the changes in business confidence and is an early indicator for economic development in Germany. It shows whether business spending and capital investment is likely to increase or decrease. The indicator is a leading indicator of future business activity, however it asks respondents about expected business activities, which may not actually occur. The index is weighted according to the influence of the company’s industry or the sector. The index values start from a base of 100.

    The IFO report reflects a euphoria that is not evident in the trading of German stocks seen in the ongoing Finviz chart of Germany, EWG, and the MSN Finance chart of Germany, EWG, from May 10, 2010 to August 26, 2010. 

    VI … EU Nation States With The Most Generous Unemployment Compensation And Progressive Tax System Have Fared Better Economically, Than Those With Austere Unemployment Compensation and Non Progressive Tax Systems …. Study Shows Welfare Statism To Be Better Than Capitalism 

    EuroIntelligence relates  that the Wall Street Journal Brussels reports on a paper from the economists Mathias Dolls, Clemens Fuest and Andreas Peichl, who made the case for the automatic stabilisation effects of welfare states during economic distress.

    “Denmark, Sweden, Germany, Belgium and Luxembourg all replace more than 50% of individual income lost during a period of high unemployment through a mix of unemployment benefits, social-insurance payments and lower taxes. Denmark replaces 82% of lost income, the most in the EU, mainly through generous unemployment benefits. Also helpful in all these countries is a progressive tax system that reduces tax burdens by more than the amount of income lost from of a layoff or pay cut. By contrast, Estonia, Portugal, Ireland, Greece and Spain all replace less than 40% of lost income.”

    Denmark has its own currency, the Danish Krone. Sweden, EWD, has its own currency, the Swedish Krona, FXS.  Germany, EWG, Belgium, EWK, and Luxembourg use the Euro, FXE.

    Estonia is the model and poster country for Milton Friedman neoliberal economic policies. Portugal, Ireland, EIRL, Greece and Spain, EWP, are collectively known as PIGS, and use the Euro, FXE.

    The chart of Germany, EWG, Sweden, EWD, Belgium, EWK, Ireland, EIRL, and Spain, EWP …. EWG, EWD, EWK, EIRL, EWP from May 10, 2010 to August 26, 2010 is provided for one’s analysis. The generous and tax progressive nations have market outperformed the neoliberal and non generous and non tax progressive nations. 

    VII  … Peak Bond Value, That Is Peak Credit, Is Near To Being Achieved. 

    A high in Total Bonds, BND,  was achieved on August 24, 2010 when BND rose to 82.80; today BND closed at 82.76.

    Barring a stock sell off, which could very well occur on Friday August 27, 2010, when the US Federal Reserve Chairman speaks, bond deflation is on the way soon.

    The interest rate on the US Ten Year Note, ^TNX, traded down to its August 24, 2010 low of 2.50.

    VIII … Base Metals Jumped Higher Today …. It’s A Jump That Is Likely To Prove Out To Be Irrational.  

    Base metals, DBB, jumped higher today. Leading the way was Tin, JJT. It has “fully reset” for short selling. 

    Gold, GLD, did not participate in the rise of the base metals. But Silver, SLV, trader slightly higher today, after yesterday’s break out.  

    IX … Short Selling And Investing In Gold And Silver Is Recommended. 

    EUFN European Financials — Sell Short on the conviction that European Financial Institutions will be a stock market loss leader.

    EWP Spain — Sell Short on the conviction that its 20% unemployment and ill-liquid banking system will continue to send Spain shares lower.

    SLV Silver — Go Long on silver’s breakout on August 25, 2010.

    DGP Double Long Gold — Go Long on the conviction that falling stock and bond values will create an investment demand for gold.

    EPV 200% Inverse Europe — Go Long on the conviction that European stocks will continue to fall in value.

    EUO 200% Inverse Euro — Go Long on a conviction that the Euro will continue to fall in value. 

    SMK 200% Inverse Mexico — Go Long as this ETF broke out on August 25, 2010.

    SJH 200% Inverse Russell 2000 Value — Go Long  as this has been one of the best performing bear market ETFs, as the US small cap value stocks have been decapitalized by their dependence on a poorly performing US financial sector.  

    BIS 200% Inverse of the Nasdaq Biotechnology — Go Long on conviction that the age of profitable investing in life science technology stocks is done and over.

    BOM 200% Double Short of Base Metals — Go Long on today’s irrational exuberance in base metal investing. Today’s rise in base materials, DBB, was likely a call higher on options expiration — a call that benefited some and probably hurt many others. 

    Suggested reading and analysis: ETFs to sell short and ETFs to buy long for a debt deflationary bear market

    X … Like the Bond Rally, There Has Been A Six Country Emerging Market Rally.

    Six emerging market nations have been favored by investors since the onset of the European sovereign debt crisis in May 2010. 

    The ongoing Yahoo Finance chart of India, INP, Brazil Small Caps, BRF, Peru, EPU, Chile, ECH, Thailand, THD, and Columbia, GXG, shows a flight to investment safe haven  …. INP, BRF, EPU, ECH, THD, GXG  Returns year to date are: INP  +1%, BRF +2%, EPU +8%, ECH +20%, THD +25%, GXG +40%. 

    XI … The European Bond, Currency, And Stock Crisis Is Returning. 

    The above information suggests that the European Sovereign Debt crisis has returned. 

    It was in April and May of 2010, that crisis arose over both the value of the Euro and the financial stability of European financial institutions, and as a result governance changed. Jolted by a continuing slide in the Euro, soaring sovereign debt bond yields, and soaring credit default swaps, the EU Finance Leaders and State Leaders convened the Eurozone May 2010 Summit and announced European Economic Governance, seigniorage aid for Greece and called for a Monetary Union with seigniorage authority to issue eurobonds, and in so doing they effected a bloodless coup where they waved national sovereignty and in effect created a region of global governance. 

    I believe investors have blown the debt bubble, seen in the chart of BND, so large, that there is going to be a mad rush to the exit doors to sell, where there will not be enough buyers for sellers, resulting in a liquidity evaporation, and a liquidity crisis.

    Three black crows in the chart of emerging market bonds, EMB, establishes it as a viable short selling opportunity, and relates that debt deflation will be coming soon to bonds …. yes bond deflation is coming soon.

    The Euro, FXE, closed up today  …… The Yen, FXY, closed slightly up.

    World stocks, VT, traded down today.

    The MSN Finance chart of Japan, EWJ, Mexico, EWW, Asia, DNH, US shares, VTI and Europe, FEZ  ….. EWJ, EWW, DNH, VTI and FEZ shows the effect of debt deflation stemming from the unwinding of the euro yen carry trade, that is EUR/JPY, beginning on August 10, 2010 and continuing through today August 26, 2010.

    Carry traders recently ran natural gas up; then they turned massively short, causing UNG to fall sharply. Today it fell again. Over the last year, it has provided a negative 51% return, according to Yahoo Finance.

    I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts. He will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

    I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have created and serviced mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

    And I envision that in Europe, a continuing fall in the EUR/JPY from today’s 107.50, will result in further stock deflation, seen in the ETF, FEZ, falling below 32.50. Then a liquidity crisis will emerge, where there will not be enough buyers for sellers of stocks as well as bonds, causing small business failures and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone credit seignior” and provider of liquidity to Europe.

    I also believe that “framework agreements” will be announced in Europe providing for fiscal federalism, giving a whole new meaning to the term European Economic Governance.

    Yes, I foresee a greater fiscal union in Europe.

    Fiscal federalism will result in the Eurozone evolving into a region of global governance where national sovereignty will be a concept of a bygone era; and state corporatism will be recognized as sovereign; and austerity as a way of life.

    XII… The Argentine Seignior

    The Economist Magazine in article Happy Go Lucky Christina, fetures Christina Fernandez de Kirchener. I consider her to be Argentina’s credit seignior.



    Disclosure: I am invested in gold bullion
    Stocks: EWG, EWO, EWK, EIRL, EWP, FXE, EUFN, EPV, EUO, DBB, BOM, EMB, BIS, JJT, SJH, INP, BRF, EPU, ECH, THD, GXG, SMK
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