I … FX currency traders took the Yen, FXY, and the Swiss Franc, FXF, higher while taking the major currencies, DBV, and developing currencies, CEW, lower on multiple concerns over the European Banks.
The ratio of the major currencies relative to the developing currencies, DBV:CEW, fell lower to close at the ledge of support at 1.013.
The Euro, FXE, closed down 1.5% at 126.46
The Yen, FXY, closed up 0.8% at 118.18
The EUR/JPY, the euro yen carry trade, traded to 106.45; a value below its August 31, 2010 close.
Swedish Krona, FXS, -1.4% ….. EWD, -1.9%
Euro FXE, FXE, -1.5% ….. FEZ, -3.0%
Mexico Peso, FXM, -0.9% ….. EWW, -1.7%
British Pound, FXB, -0.6% …. EWU, -1.7%
Australian Dollar, FXA, -0.6% ….. EWA, -0.9%
Canadian Dollar, FXC, -0.8% ….. EWC, -0.8%
II … World, VT, stocks fell 1.15% lower.
The sell off of carry trades, recommenced debt deflation that began April 26, 2010.The value shares, RZV, fell more than the growth shares RZG,
The ratio of RZV to RZG, RZV:RZG, reversed last week’s rally and turned lower.
The junior gold mining shares, GDXJ, rose higher on higher gold, GLD, and US Treasuries, ZROZ. At market turns lower in debt ,the gold mining shares become volatile and trade up and down, with the Treasuries, and finally turn lower, when debt falls substantially in value; as seen in chart of $HUI:$GOLD
Diversified Utility, NI, closed 1.7% lower tilities, XLU, closed 0.5% lower
Telecom, IYZ, closed 0.5% lower
India, INP, closed unchanged
Japan, EWJ, closed unchanged
Hong Kong, EWA, closed 0.9% lower
Singapore, EWS, closed unchanged
Vanguard Emerging Markets, VWO, closed 1.36% lower
Emerging Markets, EEM, closed 1.45% lower
The Brics, EEB, closed 1.46% lower.
III … Gold rose
Bloomberg reports Gold Futures Approach Record High as Global Stocks Slump Amid Debt Concern. Gold futures approached a record high as a slump in equities spurred demand for the precious metal as an alternative investment. Stocks in Asia, Europe and the U.S. fell on heightened concern that the global economy will struggle. The euro dropped as much as 1.4 percent against the dollar as an industry group said Germany’s 10 largest banks may need fresh capital to meet new regulations. Gold climbed as much as 0.8 percent to $1,261.60 an ounce. The all-time high on June 21 was $1,266.50.
Gold, GLD, rose 0.69%
Silver, SLV, fell 0.31% lower with the stocks.
The chart of the S&P, SPY, as well as the chart of world shares, ACWI, both show that an Elliott Wave 3 of 3 of 3 down has commenced.
IV … Debt rose
Bonds, BND, rose 0.43%
V … Today, September 7, 2010, commenced the beginning of the end of the FASB 157 entitlement to mark real estate to manager’s best estimate rather than to market commenced, as real estate shares finally fell lower with banking shares, KBE, and as the 30 -10 Yield curve, $TYX:$TNX, which steepened today, has been flattening since August 10, 2010.
Residential Real Estate PSR, -1.2%
Industrial and Office Real Estate, FIO, -1.8%
PowerShares Real Estate REZ, -1.1%
VI … Loss leaders included:
Europe, FEZ, -3.0%
Spain, EWP, -3.3%
European Financial, EUFN, -2.4%
Banks, KBE, -2.8%
Semiconductors, XSD, -2.2%
Solar Energy, TAN, -2.3%
Russell 2000 Value, IWN, -2.1%
Bloomberg reports Bank Default Swaps Rise Most in Month on Concern of Higher Capital Demands. The cost of insuring against losses on bonds sold by European financial companies rose by the most in a month on concern higher capital requirements and losses from sovereign debt holdings will endanger the recovery. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rose for a second day, climbing 8.25 basis points to 137.75, according to JPMorgan Chase & Co. at 3:30 p.m. in London. Investors are concerned the Basel Committee on Banking Supervision will propose higher capital requirements when it meets today, limiting banks’ ability to lend. Europe’s biggest lenders are already facing losses on more than 134 billion euros of Greek, Portuguese and Spanish bonds, according to a Bloomberg News survey. “If the minimum capital requirement is too high, profitability of banks will decline significantly,” said Alexander Plenk, a Munich-based strategist at UniCredit SpA. “That’s what everyone is waiting for today.” Swaps on Deutsche Bank rose 8 basis points to 106 and Commerzbank jumped 12.5 to 108, according to data provider CMA. Swaps on Germany rose 2 basis points to 40 after factory orders in Europe’s largest economy unexpectedly fell in July. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 9 basis points to 152, the biggest daily increase since Aug. 11, according to CMA.
VII … Short selling opportunities prevail
I present a listing of 40 ETFs and stocks to sell short and 10 ETFs to buy long for a debt deflationary bear market
VIII. Open Europe reports greater European Economic Governance
UK Government set to endorse the creation of EU financial supervisors
Il Sole 24 Ore: “London knows that it can only limit the damage”
PA reports that UK Chancellor George Osborne is today set to endorse the proposals for the creation of a European Systemic Risk Board and three new EU supervisors to oversee financial markets in the EU at a meeting of EU finance ministers. A Government spokesman is quoted describing the proposals as “a good deal for us” and arguing: “We are happy with this. Once it has been agreed by finance ministers, the technical details will be sorted out by national officials later this week or next week. But day-to-day supervision [of British banks and financial institutions] remains at national level – that is what we have said all along”.
Open Europe’s new briefing on the new EU supervisors is cited in several British and European media outlets. The briefing argues that new supervisors could benefit the City of London but that the voting structure in the supervisors also leaves the UK in an unusually weak position to block proposals it disagrees with. Open Europe’s Director Mats Persson is quoted by Italian daily Il Sole 24 Ore arguing: “Once established, the EU supervisors are likely to extend their powers incrementally, since the proposal is designed to allow for more and more laws to come under their authority”.
The article goes on to note that “London knows that it can only limit the damage in comparison with the objectives it had initially set” on the reform of financial supervision in the EU, and notes that from “now on [the Coalition government] will probably follow Open Europe’s advice and seek alliances” on financial regulation with other European countries. Mats is also quoted by PA, the Express, Le Monde, Dow Jones Newswires and by Chinese news agency Caixun. Conservative Home also mentions Open Europe’s briefing.
In the WSJ, Patience Wheatcroft takes a detailed look at Open Europe’s report, citing the conclusion that “a ‘single rulebook’ [for financial institutions] could benefit the City, but that assumes that the UK will write it”. She argues, “Instead, the rulebook will be written by a committee of disparate interests. The issue is just the latest to highlight the tensions in the EU that emanate from the fact that it encompasses some very different economies. While the initial powers proposed for the new regulatory bodies are limited, there is scope for them to become much stronger. There could be battles ahead”. Also citing Open Europe’s briefing, Allister Heath argues in City AM that, “One of the problems with Gordon Brown’s idiotic tripartite regulatory system was that powers and responsibility were divided; it is absurd, therefore, that the coalition is willing to sign up to a similarly fudged solution on a European level.”
Meanwhile, in an interview with Libération, French MEP Sylvie Goulard – European Parliament’s rapporteur on the European Systemic Risk Board – says: “Member states have refused to give [the new EU financial supervisors] direct powers (although envisaged in the Maastricht Treaty) over cross-border institutions. The European Parliament will try to impose their control during future negotiations on the regulation of credit rating agencies and clearing houses [...] We have clashed with member states at every stage of negotiations. This is why we did not manage to scrap the article establishing that a country can appeal against decisions from EU supervisors if they have an impact on its budget”.
Later today, finance ministers from member-states will discuss Internal Market Commissioner Michel Barnier’s proposal for a pan-European network of bank levies. Notably, Britain and Germany disagree on whether the revenues of the tax should go back to national budgets or should be ring-fenced for nationally based “bank resolution” funds, reports the FT. Euractiv reports that an internal Commission paper criticises the first approach, saying that it would “handicap [national] authorities’ ability to coordinate intervention in a cross-border case”. However, a Treasury source quoted by City AM said: “We have been very clear that revenues should go to the Exchequer and should not be ring-fenced nationally or at a European level”.
Separately, the Commission has also proposed that the EU should look at introducing transaction taxes and bank activity taxes. France and Germany reportedly support an international transaction tax. Het Financieele Dagblad reports that 70 percent of the revenues from such a tax would be raised in the UK. However, Handelsblatt reports that the unilateral introduction of a financial transaction tax is off the table.
PA WSJ: Wheatcroft Express City AM: Heath Conservative Home Le Monde Il Sole 24 Ore Caixun El Pais Today Programme: Fraser Telegraph FT EUobserver European Voice EurActiv WSJ City AM FT FD Handelsblatt This is Money HLN Dow Jones
UK Government insists the rebate remains “fully justified” on grounds of fairness
EU Budget Commissioner Janusz Lewandowski’s announcement that the British rebate “has lost its original justification” has met with widespread criticism in the British press. A UK Treasury spokesman insisted the rebate remains “fully justified” as “without the rebate, the UK’s net contribution as a percentage of national income would be twice as big as France’s, and one and a half times bigger than Germany’s”, reports the Telegraph. Open Europe’s Mats Persson is quoted in the Telegraph saying: “This government must not repeat the mistakes of its predecessor and hand over billions of pounds of taxpayers’ cash in return for vague promises which lead to nothing. The EU budget is out of date, inefficient, irrational and extremely wasteful. Until it’s cut in size and fundamentally reformed, the UK’s rebate remains wholly justified.” Mats also appeared on the BBC’s Today Programme this morning.
A leader in the Mail argues: “This breathtakingly hypocritical proposal is an early and important test for David Cameron’s handling of our relationship with the EU. Not only must he defend – as he has promised – our rebate. He must also make it clear that there cannot possibly be an increase in the EU’s budget in a year when the UK will cut spending in key areas by one quarter. Brussels must learn – like the rest of us -to live within its means.”
Finance ministers agree to EU peer review of national budgets; Italian Economy Minister: “This will be a huge devolution of powers from national governments to Brussels”
EU finance ministers yesterday agreed changes to the EU’s budget rules, which will introduce a so-called “European Semester” to co-ordinate and supervise national budgets for the forthcoming year. Under the agreement, national budgets will be “monitored in parallel during a six-month period every year, starting in 2011, so as to detect any inconsistencies and emerging imbalances.” Based on reports from the European Commission “the European Council and the Council will provide policy advice before the member states finalise their budgets for the following year.”
Reuters quotes Italian Economy Minister Giulio Tremonti who said ahead of the meeting that, “This will be a huge devolution of powers from national governments to Brussels.” He added, “Budget policies in European countries cannot be national policies any more.”
Discussions on proposed sanctions for countries which do not comply with the EU’s budget rules are still under discussion. Bloomberg quotes Economic and Monetary Affairs Commissioner Olli Rehn saying, “We agree on the need to have credible sanctions. It’s a bit like a football game. It won’t work if the players start to discuss and argue the rules of the game with the referee every time they commit a foul.” However, German Finance Minister Wolfgang Schaeuble has said that he fears a return to economic stability is slowing Germany’s push for tighter rules and sanctions, saying there had been “a slight slackening of the dynamism to draw consequences” from the crisis.
The article notes that discussions have moved to “quasi-automatic” sanctions rather than the automatic sanctions favoured by Germany and the Commission, after countries such as France indicated they would demand a vote before any country is penalised. Spain, a big recipient of EU regional funds, is also reportedly reluctant to agree to these funds being taken away as a sanction.
EU Council President Herman Van Rompuy’s taskforce on economic government also met yesterday to discuss the proposals. Van Rompuy will present a report to EU leaders at a summit on 16 September, with concrete proposals expected at the regular autumn summit in October.
BIS report: Banks in euro-zone countries hold the greatest share of bonds from the PIIGS countries
A report by the Bank for International Settlements (NASDAQ:BIS) has revealed that European banks increased their holdings of Greek, Irish, Portuguese and Spanish debt in the first quarter, despite the sovereign debt crisis. Banks in euro-zone countries hold the greatest share of bonds from the PIIGS countries. The report argues that European banks were most likely to buy the debt because they could use it as collateral for funds from the European Central Bank, reports the Irish Times.
Meanwhile, the WSJ notes that the EU’s banking stress tests understated some lenders’ holdings of potentially risky government debt, with figures from the Bank for International Settlements showing much larger holdings of Spanish and Greek debt by Europe’s banks.
IX … Commentary
The Open Europe.org report that European Finance Ministers have agreed to peer review of national budgets via a framework agreement, is a step forward in European economic governance for better fiscal management to reduce state government deficit spending, which in the past has impaired sovereign debt, created a liquidity crunch at many European Financial Institutions, EUFN, and driven down the value of European stocks, FEZ, as well as the Euro, FXE.
The announcement by the EU Finance Leaders of an EU Financial Supervision Framework Agreement, creates a federalized Eurozone, that goes far beyond the use of a common currency by a number of countries. The EU Financial Supervision Framework Agreement, is a government and economic coup, which effectively waives national sovereignty.
Ever since the European sovereign debt crisis arose, the principle of sovereign nation states has progressively fallen by the wayside. Europeans are no longer citizens residing in sovereign nation states, rather they are residents of a region of global governance. It’s as Italian Economy Minister said: “This will be a huge devolution of powers from national governments to Brussels”. Today, September 7, 2010, a region of global government was created; it is one of ten called for by the Club of Rome in 1974.
Disclosure: I am invested in gold bullion