What David Tepper Gives, Bob Prechter Tries to Take Away [View article]
Well Fed POMO is done and over until possibly November 3rd when the FOMC meets; as the Fed has announced it has stopped all purchases of debt at the time being.
An Elliott Wave 3 down in stocks likely commenced in stocks on Monday September 27, 2010, as the currency traders sold the EUR/JPY down from 113.67 to 113.47 ..... This is seen as a bearish harami in FXE:FXY.
The Fed may announce QE 2 on November 3, 2010 ... If it does, it Will be gold inflationary.
I had been thinking it wise to go short the market, as the EUR/JPY, has reached full expansion, but after reading Tyler Durden's article ..... Why QE2 + QE Lite Mean The Fed Will Purchase Almost $3 Trillion In Treasurys And Set The Stage For The Monetary Endgame ..... I've concluded that further fiat asset expansion is possible if the Fed does come out with a surprise QE 2.
Yes, QE 2 may come November 3, 2010 .... The Federal Reserve may announce a plan to buy US Treasuries, it may simply print Dollars, yes simply print, and print and print; and buy US Government Debt, to prevent a deflationary collapse.
This of course would send the value of the US Dollar, $USD, plummeting, and would be quite inflationary to many assets especially gold.
I think it wise to buy gold at this time, even though a Surprise QE 2 is likely coming on November 3, 2010 which may create an investment demand for US Government bonds.
I wrote the article European Financials, Banks And Real Estate Trade Lower As The Euro Yen, And Swedish Yen, Carry Trades, Stall Out .... and suggest that the "mother of all bear markets" has commenced today .... I think Robert Prechter did every one a favor by telling it like it is.
The S&P did not break out; the rise in the S&P's ETF, SPY, on September 20, 2010 to 114.21, as seen in the green mark on your chart, was simply a blow off top, as the S&P traded lower on September 21, and 22.
In fact, the April 26, 2010 bear market, recommenced on September 22, 2010, as traders sold Banks, KBE, European Financials, EUFN, Nasdaq Banks, QABA, Semiconductors, XSD, and Software, SWH.
This despite a higher Euro Yen carry trade, that is a higher EUR/JPY, which rallied Base Metals, DBB, including Tin, JJT, higher, while Oil, USO, fell lower. The Euro, FXE, was easily easily called higher to a stronger level of resistance at 133.4. The Yen, FXE, was called higher to 117.1, which is the area where the Bank of Japan is likely to start to intervene, to stop the rise in its currency by selling Yen.
The debt deflationary bear market that started April 26, 2010, has recommenced, as is seen in the ratio of the small cap pure value shares, RZV, to small cap pure growth shares, RZG, falling lower.
I expect the Euro, FXE, to fall lower from 133.4, as competitive currency devaluation commenced when the Bank of Japan intervened in the currency markets, to stop the rise in the value of its currency.
Wealth is best preserved by investing in gold, definitely not by investing long in stocks. For those interested in short selling I provide a reference to my ChartList on my profile page.
Why Investors Need to Understand the Yield Curve [View article]
The 30:10 US Sovereign Debt Yield Curve, $TYX:$TNX Chart shows a dramatic steepening on the Fed’s 9-21-2010 announcement, as the longer out maturity debt investments, such as ZROZ, rose more than the shorter duration investments such as TLT, as “No further expansion of its purchase program for Treasuries is likely”, reports the Khaalej Times, on the FOMC meeting and announcement.
This is the final and great steepening -- we have witnessed a burst up in steepening.
Both ZROS and TLT now reside above their 20 day moving average.
Bond traders had seen the Feds purchases of US Treasuries as monetization of debt, which caused the Yield Curve to flatten August 10, 2010; and then caused bonds, BND, to break down September 1, 2010.
Bonds are likely to rise some more today September 22, 2010 as stocks are likely to fall lower as the spigots of investment liquidity are being turned off. The chart of DBV:CEW Weekly communicates the major central banks in executing dollar swaps and quantative easing “has been turned off”.
The other spigot of investment liquidity, has been carry trade investing; but that basically came to an end on September 15, 2010, with the Bank of Japan acting unilaterally to stop the rise in the value of its currency by the “selling” the Yen, FXY.
Confirmation of the end of investment liquidity and the passage from the age of prosperity into the age of the end of credit comes from the chart of Junk Bonds, JNK. topping out.
The currency traders and the Bank of Japan have “scorched the skies” …. welcome to the investment desert of the real … we are living in a new investment matrix … “we ain’t in Kansas no more”.
Risk aversion to US sovereign debt will be at work destroying the value of both US Government Debt and other debt. This will cause a flattening of the yield curve effectively destroying the debt of the longer dated debt faster than the closer in dated debt.
The investment application is to become adept at short selling both stocks and the Zeroes, ZROZ, or better yet investing in gold. I've chosen the latter long ago.
Thanks for presenting the fact that market sentiment is quite high. This is a signal to go short the market. Several weeks ago, sentiment was bearish, that was a signal to go long.
When this market goes on a tear lower there will be a lot of bearish sentiment but it will not be a signal to go long, as when the down wave that commenced September 16, and is ongoing today September 17, gets going, the financial destruction is going to be beyond words. At that time, I may stop writing here on Seeking Alpha. You know, at that time all I will be able to say is I told you the destruction was coming.
The problem with investing long the inverse ETFs like FAZ, etc, is that without volatility they extinguish. Volatility, VXX, is a treacherous enemy of the inverse etfs.
The advantage of shorting the bullish ETFs, is that one has a mindset of shorting, so that as one becomes adept in shorting selling in general, then one hopefully becomes adept at shorting the 200% and 300% ETFs.
Personally, I am not involved in short selling, and in fact I do not own a brokerage account; and any ETFs such as the ZROZ for US Government Bonds and RZV for stocks, that I write about, are to communicate two principles.
First principle, is that the investors on August 11, took action, and on August 31, sold out of Bonds, BND, which included ZROZ, and BLV, in response to the announcement by Fed Chairman Ben Bernanke to buy mortgage backed securities. Investors see this as monetization of debt and the market place called a defacto interest rate hike. The 30 10 Yield Curve, $TYX:$TNX, is now flattening. This will operate for years to destroy bond wealth bond in the public and private sectors; yes until bonds be worth nothing at all.
Second, is that Yentervention, that is the intervention of the Bank of Japan on September 15, 2010, to sell Yen, FXY, has terminated "long" carry trade investing. And is documented in the ratio of RZV to RZG falling on September 16 and 17, 2010.
The termination of "long carry" trade investing can be seen today September 17, 2010, in FXE:FXY and FXS:FXY both turning lower, in FXA:FXY, manifesting a dark cloud cover candlestick.
Yentervention commenced competitive currency devaluation; and thus started the most aggressive phase of debt deflation.
So now only have the spigots of investment liquidity been turned off, two new processes are at work: the yield curve is flattening destroying bond wealth, and carry trades are unwinding and carry trade investing is acting as black holes sucking in and literally destroying wealth. A case being today September 17, 2010, Spain, EWP, Euorpe, FEZ, and European Bank shares, EUFN, falling lower. And another case being metal manufacturing, XME, falling lower.
So for two days now, with falling values in the S&P, SPY, and world shares, ACWI, we have entered into an Elliott Wave 3 of 3 down, for world stock wealth. The end result will be for all practically purposes, a total destruction of fiat wealth.
Gold, GLD, is trading a tiny bit up. Gold has been established as the sovereign currency and best means of preserving wealth. Over time as people see traditional wealth in currencies, stocks and bonds falling lower, they will rush to buy gold and its price will be maintained.
Many libertarian talk show hosts peddle liberty, that is they sell numismatic gold coins and are subsidized by wealthy think tanks; such have become millionaires. I do not sell numismatic or gold coins.
Many "for fee newsletter authors" hype gold stocks or silver stocks as a means of wealth preservation. I do not. In fact I recommend that the silver miners, SIL, and Gold Miners, GDXJ and GDX be sold short, as when stocks fall lower and as debt, ZROZ, falls lower, and as carry trades unwind, these will be falling lower as well.
If one be interested in shorting, one can visit my ChartList which I provide free of charge; simply visit my profile page for the reference.
I am not a licensed investment professional. I am a retired individual and blogger who perceives an investment demand for gold.
You convey a bullish scenario for the S&P ... I believe the stock markets will be falling lower beginning September 16, 2010.
The Yen, FXY, had been rising from 105.44 on April 26, 2010, to a September 14, 2010 high of 119.13, to trade lower, September 15, 2010 at 115.71 on Bank of Japan Intervention.
One reason for the strong ongoing rise of the Yen, is that it has been a cheap source of funding for carry trade investing, with many able to obtain 0.25% interest and below loans.
The Yen, FXY, has been “the juice” for going long a number of carry trade safe-haven investments, such as US Treasuries, up until September 1, 2010. Other destinations have been Tin, JJT, Food Commodities, FUD, the Brazil Small Caps, BRF (which are the opposite of the US Small Caps, the Russell 2000, IWM, which are encumbered, by poorly performing US Financials), the Frontier Emerging Market, FRN, Hong Kong, EWH, and the Emerging Market Small Cap Dividend, DGS, These have been the destination of investment capital ever since the EU Finance 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.
Those owning Forex accounts and long yen carry trades, such as the AUD/JPY, seen in the chart of FXA:FXY, scored big. They checked their accounts on September 15th to find they had a windfall as the Yen, FXY, was called lower. I ask what would you do at this time? I know what I would do, I would take profits and go short AUD/JPY, which would create downward pressure on Australian shares, EWA, and Copper Miners, CU. The capital inflow was greater in the AUDJPY than the EURJPY, so therefore, I expect the downward pressure on the Australian Shares to be greater than on the European Shares.
Likewise investors in the EUR/JPY, seen in the chart of the FXE:FXY, experienced a bonanza. I believe this places downward pressure on the European shares, FEZ, as well as country shares like Spain, EWP, and the European Financials, EUFN. The same can be said of FXS:FXY, producing downward pressure on Sweden, EWD.
September 14, 2010, was "peak Japanese Yen, FXY"; just as August 31, was "peak credit", that is peak bond, BND, value .... That's a Big Wow.
The September 15th rise in the Nikkei 225, ^N225, on a higher Yen, FXY, brings it into alignment with the World Shares, ACWI, and the S&P, SPY, “setting it” with the others for completion of an Elliott Wave 2 up, and “loading it into a Wave 3-of-3 down ”. It's like in volleyball, "you gotta have the big up" .... "before ya have the big spike down".
The September fall of the Yen marks a pivotal point in yen carry trade investing; it’s continuing fall will underwrite a deflationary bias in investing long stocks; just as a flattening 30-10 US Government Bond Yield Curve will be a deflationary bias in investing long bonds.
September 14, 2010 was peak investment liquidity --- that is a Big Ouch for which there is no bandage, no triage, and no pretend and extend.
There is a new investment paradigm, a new investment matrix, "we ain't in Kansas no more".
The Elliott Wave count on the S&P is now April 26, Elliott Wave 3 Down, and September 15, 2010 Elliott Wave 3 of 3 down, as yen carry trade support has been withdrawn by the Bank of Japan's Intervention in selling Yen.
The Elliott Wave 3s are the most sweeping and dramatic of all waves. They are the ones that build wealth on the way up and destroy wealth on the way down. The coming down wave will for all practical purposes utterly and completely destroy fiat wealth. The only wealth that will abide is gold and perhaps silver. These are sovereign wealth. The September 14th rise in gold, $GOLD, and September 15 fall in the Yen, FXY, knocks the Yen, out of competition with gold as the sovereign currency: gold is now the sovereign global currency and means of preserving wealth.
The fall of the Yen was most likely “coming”. Mike Mish Shedlock in article Currency Intervention Madness relates: “It has been proven time and time again that currency intervention does not work” …. Assuming Japan was going to have a “line of defense”, one near the 1995 is a spot (at 123) where there would be technical resistance anyway. If the Yen does drop in a sustained way, it will not be because of the intervention, but rather because the Yen had outrun fundamentals and was simply ready to drop”.
The fall of the Yen “had to be dramatic”; that is simply, “the way currency waves work”. A strong down was needed to boost the Nikkei 225, ^N225 up, resetting it for an Elliott Wave 3-of-3 to do its work. “This is the natural way of Elliott Waves”: there has to be a strong 2 up, as evidenced today September 15, 2010, so that the 3-of-3 down, can be the awesome thing that it is. And a "decisive end" had to come to support for the yen end carry trade investing long: its done, over and finished, well at least for a while.
Not only have the S&P and the NIkkei 225 been reset for falling lower, all stock markets now have been reset for their 3-of-3 downs. Get ready for investment, economic, and cultural “shock and awe”. Social hardship and chaos is coming. And out of this turmoil will come regional economic governance and Government Administration of finance, commerce, trade, banking, investment, lending and credit with a Financial Regulator overseeing all in each region.
The selling of Yen, by the bank of Japan was the biggest round of yen money-printing in six years. It will introduce a new dangerous round of competitive currency devaluations and stagnation across the industrialized world. The final one before full-blown inflation, where it will take ever increasing amounts of currency to buy even essentials like food. Such is the curse inflicted upon mankind by Milton Friedman who promoted the neoliberal "free to choose" and "floating currency" economic policies, which Nixon used to take the US off the gold standard, and conduct wars world-wide.
Commenced competitive currency deflation that is part of global debt deflation.
The coming 3-of-3 downs in stock markets, will be manifest as intense debt deflation. Debt deflation is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “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.”
Global Debt Deflation commenced on April 26, 2010, when the value shares failed to outperform the growth shares.
It was on April 26, 2010, the currency traders went long the yen and short the global currencies as is seen in this MSN Finance chart of FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, XRU, FXY causing the US Dollar to rise; as can be seen in this chart from April 26, 2010 to June 7, 2010.
On June 7, 2010, the US Dollar, $USD, turned down as the Euro, FXE, rallied on news of the call for the EFSF Monetary Authority to be established.
The fall of the Yen has turned off the only remaining spigot of investment liquidity; the other spigot of investment liquidity was the US Federal Reserve’s QE which ended for all practical purposes on March 31, 2010.
September 15, 2010 is a pivotal day in investment history. Not only have the spigots of investment funding been turned off. But now, carry trade activity will now be operating in reverse to deleverage. The carry trades will be like black holes sucking in and destroying capital.
Now with the fall of the Yen, the Global Elliott Wave 3-of-3 Down Wave can get underway to destroy wealth world wide: serious downdrafts will be coming to all financial and bond markets globally.
I personally am invested in gold bullion, $GOLD. But, I do provide a listing of ETFs and Stocks to sell short for a debt deflationary bear market; one suggestion is now to go short JYN. I agree with Tyler Durden Zero Hedge article Goldman Joins BofA In Calling For Sub-79 USDJPY Over Next 6 Months Despite Intervention who wrote: “The near-term risks are still skewed towards marginal additional $/JPY strength. A test of historic record lows below 79 appears possible, in particular if option related activity has the potential to accelerate a down move, as we have seen in the past. But in reality we are likely quite close to the bottom of $/JPY. Fundamental support for further Yen appreciation is fading as valuation starts to hurt trade flows, and rates differentials approach the lower bound. In this environment, the chances of “big splash” interventions eventually succeeding are quite high.Our forecasts remain 85 and 83 in 3 and 6 months, although we think a temporary move to marginal new lows is possible. Over a 12-month horizon, we maintain our “GSDEER reminder” and forecast $/JPY at 90.” Based upon those remarks, I recommend that one consider going short JYN as it will be falling from today’s value of 69. Mr Durden has additional thoughts on the USDJPY in article Banker Catfight: It’s On!
Also of timely note, Tyler Durden in Zero Hedge article FASB Proposes Semi-MTM Requirement, American Banker Association Goes All “Mutual Assured Destruction”: “The FASB has just fired a semi-warning salvo at the banking system with a new proposed rule that would seek the gradual return of that long lost concept known as mark-to-market. However, while not going all the way and demanding that everything on the balance sheet flowed through the income statement’s bottom line, the FASB has decided to give banks the leeway of accounting for MTM adjustment in the bottom bottom line” ….. “The American Bankers Association released a statement that said the accounting change would present “significant problems, not only for banks, but also the general economy. If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.” This new proposal is at odds with the previous FASB 157 announcement which entitled banks to mark assets at manager’s best estimate rather than mark them to market. So get ready for some real engagement between the FASB and the ABA, as I am sure the would like to continue more pretend and extend to keep the insolvent banking system afloat. I suggest that one go short real estate at this time; that is short with going short PSR, REZ, FIO, URE and DRN; going short these are high reward for low risk of investment.
I provide a link to my ChartList of Stocks and ETFs to sell short for a debt deflationary bear market which lists many opportunities at low risk, others at higher risk include shorting Inverse Volatility, XXV, and Ultra Semiconductors, USD.
Please understand, I am not a licensed investment professional and do not own a brokerage account or Forex account. I am invested in gold bullion as I perceive an investment demand for gold.
Race to the Bottom: Competitive Devaluations Across the G7 [View article]
I think your statement: "bigest round of yen money-printing in six years", is a fitting description.
Yes, it will introduce a new dangerous round of competitive currency devaluations and stagnation across the industrialized world.
Yes the final one before full-blown inflation, where it will take ever increasing amounts of currency to buy even essentials like food.
Such is the curse inflicted upon mankind by Milton Friedman who promoted the neoliberal "free to choose" and "floating currency" economic policies, which Nixon used to take the US off the gold standard, and conduct wars world-wide.
Using the Past to Predict the Future [View article]
Debt deflation came to stocks April 26, 2010, when the currency traders sold the major currencies, DBV, and minor currencies, CEW, against the Yen, FXY. This commenced the "bear market of bear markets" in stocks; yes the "mother of all bear markets" is underway currently.
Debt deflation came to bonds September 1, 2010, when the investors rejected the Fed's planned purchase of mortgage backed securities to support more "stimulate and spend". Investors had been going long in those bonds with greatest out maturity such as ZROS, TLT, and BLV.
The "mother of all bear markets" came to bonds on September 1, 2010; so the investor who goes long bonds, TLT, or BLV, will be caught off guard, by unexpected flattenings of the 30-10 yield curve,$TYX:$TNX, wiping out advances made in being long.
And now, as of the most recent trading day, September 10, 2010, I believe, the S&P, SPY, and the world stocks, ACWI, have completed an Elliott Wave 2 up and are ready to enter an Elliott Wave 3-of-3-of-3 down.
The Elliott Wave count on the S&P is ... 3 Down on April 26, 2010, 3-of-3 down on August 10, 2010. And now as of September 10, 2010, ready to go 3-of-3-of-3 Down.
The 3-of-3-of-3 waves are the most aggressive of all waves; they build wealth on the way up and destroy wealth on the way down.
On my profile page I've provided a link to a Stockcharts ChartList of ETF and stocks to sell short .... ZROZ is on that list. One would for example sell it short as it advances. Stocks should be sold short immediately before the opportunity to sell them escapes; an excellent choice Australia, EWA, which has had a good rise on AUD/JPY, that is FXA:FXY, carry trade investing.
In other words, stocks, being on the cusp of falling lower represent "the short selling opportunity of a lifetime".
Now with bonds having fallen lower we will see a continual see sawing destruction of bond and stock wealth; one is going to have to be an adept short seller. Debt deflation will progressively and continually wipe out bond and stock wealth. Traditional wealth will be literally sawn asunder by falling currency values, or better said, by unwinding carry trade investments.
Having said that I believe gold bullion offers a much better investment. And dips in the price of gold, that come, will be short lived, as investors escaping a flattening 30-10 US Debt curve, and unwinding yen carry trades, like the EUR/JPY, will be seeking the safe haven of physical gold.
You relate, "I believe it’s going to give us another chance to get involved with that trade on Mon/Tues if it closes below it’s 50dma."
It may close below its 50dma very soon. This would be a good trading idea in a "traditional environment"; however, peak credit was attained August 31, 2010, when Bonds, BND, closed at 82.66; and when TLT closed at 108.24.
The next day September 1, 2010 marked the transition from “the age of neoliberal Milton Friedman and Alan Greenspan based credit liquidity” to “the age of the end of credit”. September 1, 2010, also marked ”the end of entitlements” and “the beginning of world-wide austerity”.
The 30-10 yield curve,$TYX:$TNX, began to flatten on August 11, 2010, reversing a trend that goes back to early 2000. This signals risk aversion to sovereign debt.
The flattening of the yield curve came as a result of the Federal Reserve Chairman’s announcement of August 10, 2010 of the purchase of mortgage-backed securities. Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt.
The Fed Chairman’s announcement of purchase of mortgage-backed securities caused the bond rally in US Treasuries, TLT, and Zeroes, ZROZ, HIgh Grade Corporate Bonds, LQD, that began April 6, 2010, to fail September 1, 2010, sending bond prices lower and interest rates higher as traders saw the announced purchase of mortgage-backed securities as a monetization of debt.
The safe haven rally in debt, and the low-interest rates available to corporations, that began with the onset of the European Sovereign Debt Crisis is over, repeat over and done, through and finished as investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as ZROZ.
Now that TLT has fallen to its 50dma, its like you suggest, one should, using traditional logic and buy TLT as stocks, VT, or ACWI, sell off. But, here is the big but, any run up in bonds will be short lived because of risk aversion to the Fed's plans to monetize the debt.
Debt deflation came to stocks April 26, 2010, when the currency traders sold the major currencies, DBV, and minor currencies, CEW, against the Yen, FXY. This commenced the "bear market of bear markets" in stocks.
Debt deflation came to bonds September 1, 2010, when the investors rejected the Fed's planned purchase of mortgage backed securities to support more "stimulate and spend".
So, the investor who goes long bonds, TLT, will be caught off guard, by unexpected flattenings of the 30-10 yield curve,$TYX:$TNX, wiping out advances made in being long.
The better trade is to wait for a rise in TLT, and go short in the long out ZROZ -- it has better movement than TLT.
The trading principle here is according to the maxim: In a bull market, the investor buys in dips; and in a bear market, the investor sells into strength.
"The bear market of bear markets" commenced in US Sovereign Debt on September 1, 2010.
And now, as of the most recent trading day, September 10, 2010, I believe, the S&P, SPY, and the world stocks, ACWI, have completed an Elliott Wave 2 up and are ready to enter an Elliott Wave 3-of-3-of-3 down.
The Elliott Wave count on the S&P is ... 3 Down on April 26, 2010, 3-of-3 down on August 10, 2010. And now as of September 10, 2010, ready to go 3-of-3-of-3 Down.
On my profile page I've provided a link to a Stockcharts ChartList of ETF and stocks to sell short .... ZROZ is on that list. One would for example sell it short as it advances. Stocks should be sold short immediately before the opportunity to sell them escapes. In other words, stocks being on the cusp of falling lower represents the short selling opportunity of a lifetime.
Now with bonds having fallen lower we will see a continual see sawing destruction of bond and stock wealth; one is going to have to be an adept short seller.
Having said that I believe gold bullion offers a much better investment. And dips that come will be short lived as investors escaping a flattening 30-10 US Debt curve, and unwinding yen carry trades will be seeking the safe haven of physical gold.
Thanks for the summary article, as it shows where money other than gold has gone.
Telecom and Utilities are the traditional defensive sectors; and utilities have held their value as they pay dividends.
When one compares the chart of the mutual fund FAGIX which is comprised of distressed investments with JNK and Europe, FEZ, one sees that JNK rose together with both, up until FEZ fell to the European Sovereign Debt Crisis. Then of late, JNK has participated in a bond rally, and especially of late it has seen a flight to safety from a flattening yield curve in longer out corporate high grade and government bonds. But it does have significant fall potential: meaning, when it falls, it is going to fall fast and hard.
Thailand, THD, and Peru, EPU, have been safehavens as they are far removed from European Financial Institutions, which are burdened with contagion from the European Sovereign Debt Crisis, and banking issues and unemployment in Spain, and lack of trade in Portugal, and housing debt in Ireland, and unrevealed debt in Greece, etc, etc, etc.
Thailand and Peru are bastions of free enterprise; and Brazil is too; therefore it stands to reason that these do well. Furthermore the Asian and Latin America countries you mention have currencies which make up the developing currencies, CEW, have been outperforming the major currencies, DBV. Thus the countries have so far not experienced the debt deflation of Europe, FEZ.
You give sound caution: buy ”high” and sell “higher" -- in as much as we are in a market top of ALL stocks and ALL bonds, its neither the time to be invested in or buying the ETFs presented.
There are plenty of short selling opportunities and gold will continue to hold value as stocks and bonds suffer on going debt deflation.
I provide a free ChartList of short selling suggestions for those interested stockcharts.com/def/se...
Risks Along the Yield Curve, Part 1 [View article]
Thanks for the informative and easy to understand article.
You relate: "Now may be the time for investors to consider fixed income investments at the short-end of the yield curve to take advantage of the diversification benefits fixed income investing may offer, while seeking to mitigate interest risk. Investing outside of the US dollar may also prove beneficial, should present dynamics negatively affect US economic stability."
Yes, one may want to invest in the short end with the ETF SHY which would limit one's traditional exposure to the volatility seen it the longer out TLT, and BLV; but given what you say is "the likelihood of another financial catastrophe may have risen", I am more concerned about the return of my investment than the return on my investment. And I want to be completely out of the dollar, and into gold and am willing to accept the volatility risks there of. I see gold mining stocks as very volatile, and history indicates that these turn lower when US Treasuries in the futures market, $USB, turns lower, as is seen in the chart of $HUI:$USB.
You relate: "The government has issued vast amounts of longer duration notes and bonds."
I am very concerned about this, as investors may choose to exit from the longer out government debt, in large numbers at the same time, causing a drop in their value.
Also, new buyers may not come to the bond market. Perhaps the bond market is a type of ponzi scheme. New buyers may simply say no to the US Government deficity policy of "stimulate and spend"; and there could be a series of failed US Treasury auctions. Then the value of the longer out debt would fall fast and hard, wiping out a considerable portion of the investors portfolio.
Going back to your statement: "The government has issued vast amounts of longer duration notes and bonds."
I have to agree. Doug Noland of Prudent Bear, says there is a debt bubble, I have to agree. I've decided to be as far away from the fiat asset market as possible and put what little assets I have into gold bullion.
Thanks for the reference to The ETFdb 60 Index: i have bookmarked it on my blogsite for daily reference and reflection.
Your article is timely because on September 1, 2010, debt deflation came to bonds, complementing the debt deflation that came to stocks on April 26,2010.
Thus, we will now have a see-saw destruction of fiat wealth, meaning BLV will at times be going down; then XLF will be going down; these two will be alternating going down, destroying one's traditional form of wealth, literally cutting it asunder.
I am invested in gold bullion to protect my self from debt deflation which comes from currencies falling lower in price; gold with perhaps for now the Yen and the Swiss Franc, has arisen to be the sovereign currency.
I would like to present my view that holding debt of any kind, even high grade corporate debt, exposes one to the risk of loss of principle as interest rates go higher. I believe that interest rates were called higher by the markets on September 1, 2010, in response to the US Federal Chairman Ben Bernanke announcing intentions to buy mortgage backed securities on not only one occassion but on two occassions.
BLV, fell parabolically lower on September 1, 2010, with the purchase of the yen based carry trades, on September 1, 2010, which rallied stocks, ACWI; and turned the tide on bonds, BND, sending them lower, establishing August 31, 2010 as a high in bonds at 82.66, that is, ”establishing August 31, 2010 as peak credit” … bond deflation has been underway since September 1, 2010.
BLV peaked on August 26, 2010 at 87.25. It has the same wave structure as BND; so any comments about bonds, BND, apply directly to BLV as well.
Going over to MSN.com and sorting on the 3 year returns, BLV shows 9.60 %, which is quite good; going all the way to the bottom are such things as Natural Gas and Financial Services, which is quite bad.
I believe that BLV's returns will be influenced by a flattening of the 30-10 US Sovereign Debt Curve, and by CDS on corporate bonds, and bonds of all types.
The interest rate on the 30 Year US Government bond, $TYX, rose strongly September 1, 2010.
And the interest rate on the US 10 Year Note, $TNX, also rose strongly September 1, 2010.
September 1, 2010 marks the transition from “the age of neoliberal Milton Friedman based credit liquidity” to “the age of the end of credit”; this also means ”the end of entitlements” and “the beginning of world-wide austerity”.
The 30-10 yield curve,$TYX:$TNX, began to flatten on August 11, 2010, reversing a trend that goes back to early 2000.
This signals risk aversion to sovereign debt. The flattening of the yield curve came as a result of the Federal Reserve Chairman's announcement of August 10, 2010 of the purchase of mortgage-backed securities. Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt.
This caused the bond rally in US Treasuries, TLT, and Zeroes, ZROZ, as well as BLV, that began April 6, 2010, to fail September 1, 2010, sending bond prices lower and interest rates higher.
The safe haven rally in debt, and the low-interest rates available to corporations, that began with the onset of the European Sovereign Debt Crisis is over, repeat over and done, through and finished. Investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as ZROZ.
I believe a sovereign debt, read TLT, crisis, is coming soon, as well as a global financial collapse, where there will be no liquidity to buy or sell paper assets; I want something liquid like gold of silver as an investment.
Systemic risk is quite high. Liquidity evaporation could happen quite easily, either coming through a failed Treasury auction or a situation where there may not be enough buyers of investment securities to meet sellers demand.
I believe that soon, out of a liquidity evaporation and a bond, BND, 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 the intensity of onset of the coming credit crunch will come with a great rush and that the corporate bond market, BLV, will shut down very quickly. Like I say, I believe a lending boss will be announced and pretty much only natural resource companies and defense contractors and food producers will have credit liquidity.
Furthermore, I see a coming ”see-saw” exhaustion of fiat wealth with stocks, ACWI, and then bonds, BND, alternatively falling lower. There may be days when both fall lower. The chart of Bonds, BND, for September 7, 2010 shows three black crows, with a fall in value to a head and shoulders pattern at roughly 82.00 and then a rise to 82.44.
The chart of world stocks, ACWI, as well as the S&P, SPY, as of September 7, 2010, shows that the world stocks enter an Elliott Wave 3 of 3 of 3 down having completed a three white soldiers pattern, and a one day down --- ACWI closed down 1.28% and SPY closed down 1.13% on September 7, 2010.
As the value of stocks falls lower, so will the value of corporate bonds, as they will fall under the influence of a flattening 30-10 US Treasuries curve, $TYX:$TNX seen in Stockcharts.com chart.
You remark that BLV, "spreads exposure across different sectors of the investment grade bond market, invests primarily in securities with at least 20 years to maturity" .... This is exactly the part of the maturity curve that will experience the greatest devastation. Yes lots of devastation to come in BLV, just like in TLT and ZROZ as they all are furhter out on the yield curve.
In summary, I have to ask, got gold? like gold bullion hidden away? I do!
Corporate Bond Duration Risk Reaches All-Time High [View article]
Thanks for your article presenting the risk of investing in bonds.
I will preface my remarks by relating that my money has been going and will continue to go where I believe it will be the safest. I am not concerned about the return on my money; rather I am concerned about the return of my money. Therefore, I am invested in gold bullion which has no interest rate of return. I keep the gold well secured to prevent its loss.
Having said that I would like to present my view that holding debt of any kind, even high grade corporate debt, exposes one to the risk of loss of principle as interest rates go higher. I believe that interest rates were called higher by the markets on September 1, 2010, in response to the US Federal Chairman Ben Bernanke announcing intentions to buy mortgage backed securities.
High grade corporate debt, LQD, fell parabolically lower on September 1, 2010, with the purchase of the yen based carry trades, on September 1, 2010, which rallied stocks, ACWI; and turned the tide on bonds, BND, sending them lower, establishing August 31, 2010 as a high in bonds at 82.66, that is, ”establishing August 31, 2010 as peak credit” … bond deflation has been underway since September 1, 2010.
High grade corporate debt, LQD, peaked on September 1, 2010 at 112.58. It has the same wave structure as BND; so any comments about bonds, BND, apply directly to LQD as well.
Going over to MSN.com and sorting on the 3 year returns, LQD shows 7.57%, which is quite good; going all the way to the bottom are such things as Natural Gas and Financial Services, which is quite bad.
I believe that LQD’s returns will be influenced by a flattening of the 30-10 US Sovereign Debt Curve, and by CDS.
The interest rate on the 30 Year US Government bond, $TYX, rose strongly September 1, 2010. And the interest rate on the US 10 Year Note, $TNX, also rose strongly September 1, 2010.
September 1, 2010 marks the transition from “the age of neoliberal Milton Friedman based credit liquidity” to “the age of the end of credit”; this also means ”the end of entitlements” and “the beginning of world-wide austerity”.
The 30-10 yield curve,$TYX:$TNX, began to flatten on August 11, 2010, reversing a trend that goes back to early 2000.
This signals risk aversion to sovereign debt. The flattening of the yield curve came as a result of the Federal Reserve Chairman's announcement of August 10, 2010 of the purchase of mortgage-backed securities. Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt.
This caused the bond rally in US Treasuries, TLT, and Zeroes, ZROZ, HIgh Grade Corporate Bonds, LQD, that began April 6, 2010, to fail September 1, 2010, sending bond prices lower and interest rates higher.
The safe haven rally in debt, and the low-interest rates available to corporations, that began with the onset of the European Sovereign Debt Crisis is over, repeat over and done, through and finished. Investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as ZROZ.
I believe a sovereign debt, read TLT, crisis, is coming soon, as well as a global financial collapse, where there will be no liquidity to buy or sell paper assets; I want something liquid like gold of silver as an investment.
Systemic risk is quite high. Liquidity evaporation could happen quite easily, either coming through a failed Treasury auction or a situation where there may not be enough buyers of investment securities to meet sellers demand.
I believe that soon, out of a liquidity evaporation and a bond, BND, 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 the intensity of onset of the coming credit crunch will come with a great rush and that the corporate bond market, LQD, will shut down very quickly. Like I say, I believe a lending boss will be announced and pretty much only natural resource companies and defense contractors and food producers will have credit liquidity.
Furthermore, I see a coming ”see-saw” exhaustion of fiat wealth with stocks, ACWI, and then bonds, BND, alternatively falling lower. There may be days when both fall lower. The chart of Bonds, BND, for September 7, 2010 shows three black crows, with a fall in value to a head and shoulders pattern at roughly 82.00 and then a rise to 82.44.
The chart of world stocks, ACWI, as well as the S&P, SPY, as of September 7, 2010, shows that the world stocks enter an Elliott Wave 3 of 3 of 3 down having completed a three white soldiers pattern, and a one day down --- ACWI closed down 1.28% and SPY closed down 1.13% on September 7, 2010.
As the value of stocks falls lower, so will the value of corporate bonds, as they will fall under the influence of a flattening 30-10 US Treasuries curve, $TYX:$TNX seen in Stockcharts.com chart.
You relate: “Bloomberg reported today that bondholders might suffer record losses in their investment in corporate bonds when policy makers start to raise interest rates” ... The way I see it, investors have begun NOW to record losses upon remarks of the Fed Chairman.
You relate: “The duration on corporate debt, which indicates the price sensitivity of the bond with changes in its yield, rose to a record high of 5.69 years as of end of August. The fact that bonds maturing more than 10 years from now made up more than 39% of sales last month as companies took advantage of borrowing at low costs makes bondholders more vulnerable given a higher exposure to high duration bonds” .... My interpretation of the facts you present is that investors have sought better returns by going out into longer duration. As the 30-10 Yield US Sovereign curve flattens, I believe the interest rate on the bonds you mention will go up and that investors will massively flee from the referenced bonds.
You mention: “CDS for European corporate bonds is rising, while banks in Europe offered around 8 billion euro of bonds for sale, the most in five weeks” ... My comment is that I see a trinity of forces actively destroying financial wealth as opposed to wealth held in gold. The first is unwinding yen carry trades that commenced April 26, 2010, as reflected in small cap pure value shares falling significantly compared to small cap pure growth shares, ie the RSV:RZG ratio. The second is the flattening of the 30-10 Sovereign Debt Curve, which commenced August 10, 1010, as seen in $TYX:$TXN falling. And the third is recent rise in CDS you mention.
You write: “Although interest rates are at low levels and expected to stay low for a longer period, increased borrowing at low rates by companies is exposing bondholders to the eventual risk of drop in prices when interest rates rise.” .... I have no expectation that interest rates will stay low. While the US Federal Reserve may keep its rate low. Buyers of US Government Debt, if there be any, will want higher rates, $TYX and $TNX.
I do appreciate your article, and the facts presented; please keep writing.
Market Watch: Time to Stick My Head in the Sand [View article]
Thanks for posting the article; here in the short ideas section as it gives me an opportunity to post my research for those interested in short selling.
We are on the very cusp of "the short selling opportuntiy of a lifetime".
I do have to say, I do not trade, as I believe a liquidity crisis going to emerge, where there will not be enough buyers to meet sellers demand. Therefore I stored up on gold bullion.
I suggest that one be short the miners, especially the junior gold miners, GDXJ. Gold stocks, GDX, are in the process of disconnecting from the price of gold; and research shows that at past market turns lower in Treasuires, ZROZ, the gold mining stock turn lower as well. So not a good time to be invested in stocks of any kind.
So here is my short sellling list which can be seen at Stockcharts.com ChartList stockcharts.com/def/se...
EWA Australia 5.9% KBE Banking 5.6% BZ Boise 10.0% BRF Brazil Small Caps 2.5% CMG Chipotle Mexican Grill 6.8% DE Deere 6.2% FDN Dow Jones Internet 4.9% EUFN European Financials 5.5% EXPD Expeditors 6.1% ITB Housing 5.0% FIO Industrial And Office Real Estate 6.3% HHH Internet 6.0% EIRL Ireland 4.9% GDXJ Junior gold mining companis 5.6% LVS Las Vegas Sands 5.8% LCAPA Liberty Media 7.5% EWW Mexico 4.5% KME Mortgage Finance 7.7% NNI Nelnet 2.0% N NetSuite 7.9% PXN PowerShares Lux Nanotech 3.6% PGX PowerShares Preferred 0.5% PSR PowerShares Real Estate 4.1% PPD PowerShares Retail 7.2%, REZ Residential Real Estate 6.0% IWN Russell 2000 Value 4.4% XSD Semiconductors 2.6% XLYS Small Cap Consumer Discretionary 6.0% TAN Solar 7.5% EWP Spain 5.3% EWD Sweden 4.5% JJT Tin -2.3%
Debt ETFs for a debt deflationary bear market include: TMV 300% Inverse Of 30 Year Treasury 4.0% TBT UltraShort 30 Year Treasury 2.4% ZROZ Zeroes -3.2% CMF California Municipal Bond -0.3 MUB Municipal Bonds -0.2%
Like you write the rally is based upon dubious justification.
The FX currency traders rallied the major currencies, DBV, a stunning 6.0%, for the week ending September 3, 2010; taking them back to the middle of a broadening top pattern going back to October 2009. And they rallied the developing currencies, CEW, 1.1%, taking them back to the middle of a broadening pattern going back to November 2009. Thus, the currency traders reset both currencies and stocks for falling.
The currency traders action gave birth to a rally, mostly but not exclusively, in those stocks that had been sold off heavily since April 26, 2010. The surging currencies “rallied the weakest”, that is the most risky and shaky of stocks and ETFs; a case being PowerShares S&P Small Cap Consumer Discretionary, XLYS, rose 6%.
The ratio of major currencies, relative to developing market currencies. DBV:CEW, rose a breathtaking 6.1% today. In just one day, the ratio of major currencies relative to developing currencies, was brought back to its pre European Sovereign Debt Crisis level. The chart shows today’s action “burst the ratio up” from a head and shoulders pattern and “took the ratio up and out” of a consolidation triangle.
The South African Rand, SCR, rose 1.6%; the New Zealand Dollar, BNZ, 1.5%; the Canadian Dollar, FXC; the Mexico Peso, FXM, 0.9%; it is rolling over, the Swedish Krona, FXS, 1.8%, it rose to the middle of a broadening top pattern going back to mid July 2009, all I can say is lookout below both for the Krona and the Sweden shares, EWD; the Australian Dollar, FXA, 2.0%, to make for a triple high in this currency; the Brazilian Real, BZF, 1.3% manifesting three white soldiers to a new all time high; the Euro, FXE, 1.3%; the Ruble, XRU, traded unchanged on a ledge of support just above 32, there is nothing but thin air below; the British Pound Sterling, FXB, has dribbled lower to trade above a ledge of support at 153; the Indian Rupe, ICN, 1.3%; Swiss Franc, FXF, 1.2%.
The Japanese Yen, FXY, rose 1.1% to close at 117.28, it has risen from 105 since March of this year, its rise is the anti-thesis of investing long; its rise as shown in the monthly chart, has caused a terrific unwinding of yen carry trade investing in stocks, VT, and commodities, DBC.
And now a flattening yield curve, seen in the ETF Flattner, FLAT, will act to destroy bonds, whether they sovereign debt, corporate debt, or municipal debt.
Debt deflation, commenced April 26, 2010 in stocks ...... and commenced September 1, 2010 in bonds. In just three days, Zeroes, ZROS, fell 8.0%, US Government Bonds TLT, fell 4.5%, and the US Treasury Note, IEF, fell 2% as seen in Yahoo Finance chart …. ZROZ, TLT, IEF.
So now the financial market has commodity, stock and bond deflation going, all thanks to the currency traders selling out of yen carry based trades, and investors dropping out of a steepening yield curve.
The action of the currency traders in calling the major currencies higher this last week has reloaded and restrengthened the ability of yen carry trade investing to unleash a severe bout of yen carry trade disinvestment.
The chart of the S&P, SPY, shows that an Elliott Wave 3 Down commenced 4-26-2010; and that a Wave 3 of 3 Down commenced on 8-10-2010. An inquiring mind asks: “has the major currencies rally brought the S&P higher to the point of a likely 3-of-3-of-3 downturn”? I have to answer in the affirmative.
I am invested in gold bullion, as I have concerns that a liquidity crisis could emerge at any time; but for those who are interested in short selling, I provide a Stockcharts.com Public Chart List of 50 ETFs and stocks to sell short and 10 ETFs to buy long for a debt deflationary bear market.
What David Tepper Gives, Bob Prechter Tries to Take Away [View article]
An Elliott Wave 3 down in stocks likely commenced in stocks on Monday September 27, 2010, as the currency traders sold the EUR/JPY down from 113.67 to 113.47 ..... This is seen as a bearish harami in FXE:FXY.
The Fed may announce QE 2 on November 3, 2010 ... If it does, it Will be gold inflationary.
I had been thinking it wise to go short the market, as the EUR/JPY, has reached full expansion, but after reading Tyler Durden's article ..... Why QE2 + QE Lite Mean The Fed Will Purchase Almost $3 Trillion In Treasurys And Set The Stage For The Monetary Endgame ..... I've concluded that further fiat asset expansion is possible if the Fed does come out with a surprise QE 2.
Yes, QE 2 may come November 3, 2010 .... The Federal Reserve may announce a plan to buy US Treasuries, it may simply print Dollars, yes simply print, and print and print; and buy US Government Debt, to prevent a deflationary collapse.
This of course would send the value of the US Dollar, $USD, plummeting, and would be quite inflationary to many assets especially gold.
I think it wise to buy gold at this time, even though a Surprise QE 2 is likely coming on November 3, 2010 which may create an investment demand for US Government bonds.
I wrote the article European Financials, Banks And Real Estate Trade Lower As The Euro Yen, And Swedish Yen, Carry Trades, Stall Out .... and suggest that the "mother of all bear markets" has commenced today .... I think Robert Prechter did every one a favor by telling it like it is.
S&P 500 Breakout [View article]
In fact, the April 26, 2010 bear market, recommenced on September 22, 2010, as traders sold Banks, KBE, European Financials, EUFN, Nasdaq Banks, QABA, Semiconductors, XSD, and Software, SWH.
This despite a higher Euro Yen carry trade, that is a higher EUR/JPY, which rallied Base Metals, DBB, including Tin, JJT, higher, while Oil, USO, fell lower. The Euro, FXE, was easily easily called higher to a stronger level of resistance at 133.4. The Yen, FXE, was called higher to 117.1, which is the area where the Bank of Japan is likely to start to intervene, to stop the rise in its currency by selling Yen.
The debt deflationary bear market that started April 26, 2010, has recommenced, as is seen in the ratio of the small cap pure value shares, RZV, to small cap pure growth shares, RZG, falling lower.
I expect the Euro, FXE, to fall lower from 133.4, as competitive currency devaluation commenced when the Bank of Japan intervened in the currency markets, to stop the rise in the value of its currency.
Wealth is best preserved by investing in gold, definitely not by investing long in stocks. For those interested in short selling I provide a reference to my ChartList on my profile page.
Why Investors Need to Understand the Yield Curve [View article]
This is the final and great steepening -- we have witnessed a burst up in steepening.
Both ZROS and TLT now reside above their 20 day moving average.
Bond traders had seen the Feds purchases of US Treasuries as monetization of debt, which caused the Yield Curve to flatten August 10, 2010; and then caused bonds, BND, to break down September 1, 2010.
Bonds are likely to rise some more today September 22, 2010 as stocks are likely to fall lower as the spigots of investment liquidity are being turned off. The chart of DBV:CEW Weekly communicates the major central banks in executing dollar swaps and quantative easing “has been turned off”.
The other spigot of investment liquidity, has been carry trade investing; but that basically came to an end on September 15, 2010, with the Bank of Japan acting unilaterally to stop the rise in the value of its currency by the “selling” the Yen, FXY.
Confirmation of the end of investment liquidity and the passage from the age of prosperity into the age of the end of credit comes from the chart of Junk Bonds, JNK. topping out.
The currency traders and the Bank of Japan have “scorched the skies” …. welcome to the investment desert of the real … we are living in a new investment matrix … “we ain’t in Kansas no more”.
Risk aversion to US sovereign debt will be at work destroying the value of both US Government Debt and other debt. This will cause a flattening of the yield curve effectively destroying the debt of the longer dated debt faster than the closer in dated debt.
The investment application is to become adept at short selling both stocks and the Zeroes, ZROZ, or better yet investing in gold. I've chosen the latter long ago.
Another Up Day for the S&P 500 [View article]
When this market goes on a tear lower there will be a lot of bearish sentiment but it will not be a signal to go long, as when the down wave that commenced September 16, and is ongoing today September 17, gets going, the financial destruction is going to be beyond words. At that time, I may stop writing here on Seeking Alpha. You know, at that time all I will be able to say is I told you the destruction was coming.
Another Up Day for the S&P 500 [View article]
The advantage of shorting the bullish ETFs, is that one has a mindset of shorting, so that as one becomes adept in shorting selling in general, then one hopefully becomes adept at shorting the 200% and 300% ETFs.
Personally, I am not involved in short selling, and in fact I do not own a brokerage account; and any ETFs such as the ZROZ for US Government Bonds and RZV for stocks, that I write about, are to communicate two principles.
First principle, is that the investors on August 11, took action, and on August 31, sold out of Bonds, BND, which included ZROZ, and BLV, in response to the announcement by Fed Chairman Ben Bernanke to buy mortgage backed securities. Investors see this as monetization of debt and the market place called a defacto interest rate hike. The 30 10 Yield Curve, $TYX:$TNX, is now flattening. This will operate for years to destroy bond wealth bond in the public and private sectors; yes until bonds be worth nothing at all.
Second, is that Yentervention, that is the intervention of the Bank of Japan on September 15, 2010, to sell Yen, FXY, has terminated "long" carry trade investing. And is documented in the ratio of RZV to RZG falling on September 16 and 17, 2010.
The termination of "long carry" trade investing can be seen today September 17, 2010, in FXE:FXY and FXS:FXY both turning lower, in FXA:FXY, manifesting a dark cloud cover candlestick.
Yentervention commenced competitive currency devaluation; and thus started the most aggressive phase of debt deflation.
So now only have the spigots of investment liquidity been turned off, two new processes are at work: the yield curve is flattening destroying bond wealth, and carry trades are unwinding and carry trade investing is acting as black holes sucking in and literally destroying wealth. A case being today September 17, 2010, Spain, EWP, Euorpe, FEZ, and European Bank shares, EUFN, falling lower. And another case being metal manufacturing, XME, falling lower.
So for two days now, with falling values in the S&P, SPY, and world shares, ACWI, we have entered into an Elliott Wave 3 of 3 down, for world stock wealth. The end result will be for all practically purposes, a total destruction of fiat wealth.
Gold, GLD, is trading a tiny bit up. Gold has been established as the sovereign currency and best means of preserving wealth. Over time as people see traditional wealth in currencies, stocks and bonds falling lower, they will rush to buy gold and its price will be maintained.
Many libertarian talk show hosts peddle liberty, that is they sell numismatic gold coins and are subsidized by wealthy think tanks; such have become millionaires. I do not sell numismatic or gold coins.
Many "for fee newsletter authors" hype gold stocks or silver stocks as a means of wealth preservation. I do not. In fact I recommend that the silver miners, SIL, and Gold Miners, GDXJ and GDX be sold short, as when stocks fall lower and as debt, ZROZ, falls lower, and as carry trades unwind, these will be falling lower as well.
If one be interested in shorting, one can visit my ChartList which I provide free of charge; simply visit my profile page for the reference.
I am not a licensed investment professional. I am a retired individual and blogger who perceives an investment demand for gold.
Another Up Day for the S&P 500 [View article]
The Yen, FXY, had been rising from 105.44 on April 26, 2010, to a September 14, 2010 high of 119.13, to trade lower, September 15, 2010 at 115.71 on Bank of Japan Intervention.
One reason for the strong ongoing rise of the Yen, is that it has been a cheap source of funding for carry trade investing, with many able to obtain 0.25% interest and below loans.
The Yen, FXY, has been “the juice” for going long a number of carry trade safe-haven investments, such as US Treasuries, up until September 1, 2010. Other destinations have been Tin, JJT, Food Commodities, FUD, the Brazil Small Caps, BRF (which are the opposite of the US Small Caps, the Russell 2000, IWM, which are encumbered, by poorly performing US Financials), the Frontier Emerging Market, FRN, Hong Kong, EWH, and the Emerging Market Small Cap Dividend, DGS, These have been the destination of investment capital ever since the EU Finance 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.
Those owning Forex accounts and long yen carry trades, such as the AUD/JPY, seen in the chart of FXA:FXY, scored big. They checked their accounts on September 15th to find they had a windfall as the Yen, FXY, was called lower. I ask what would you do at this time? I know what I would do, I would take profits and go short AUD/JPY, which would create downward pressure on Australian shares, EWA, and Copper Miners, CU. The capital inflow was greater in the AUDJPY than the EURJPY, so therefore, I expect the downward pressure on the Australian Shares to be greater than on the European Shares.
Likewise investors in the EUR/JPY, seen in the chart of the FXE:FXY, experienced a bonanza. I believe this places downward pressure on the European shares, FEZ, as well as country shares like Spain, EWP, and the European Financials, EUFN. The same can be said of FXS:FXY, producing downward pressure on Sweden, EWD.
September 14, 2010, was "peak Japanese Yen, FXY"; just as August 31, was "peak credit", that is peak bond, BND, value .... That's a Big Wow.
The September 15th rise in the Nikkei 225, ^N225, on a higher Yen, FXY, brings it into alignment with the World Shares, ACWI, and the S&P, SPY, “setting it” with the others for completion of an Elliott Wave 2 up, and “loading it into a Wave 3-of-3 down ”. It's like in volleyball, "you gotta have the big up" .... "before ya have the big spike down".
The September fall of the Yen marks a pivotal point in yen carry trade investing; it’s continuing fall will underwrite a deflationary bias in investing long stocks; just as a flattening 30-10 US Government Bond Yield Curve will be a deflationary bias in investing long bonds.
September 14, 2010 was peak investment liquidity --- that is a Big Ouch for which there is no bandage, no triage, and no pretend and extend.
There is a new investment paradigm, a new investment matrix, "we ain't in Kansas no more".
The Elliott Wave count on the S&P is now April 26, Elliott Wave 3 Down, and September 15, 2010 Elliott Wave 3 of 3 down, as yen carry trade support has been withdrawn by the Bank of Japan's Intervention in selling Yen.
The Elliott Wave 3s are the most sweeping and dramatic of all waves. They are the ones that build wealth on the way up and destroy wealth on the way down. The coming down wave will for all practical purposes utterly and completely destroy fiat wealth. The only wealth that will abide is gold and perhaps silver. These are sovereign wealth. The September 14th rise in gold, $GOLD, and September 15 fall in the Yen, FXY, knocks the Yen, out of competition with gold as the sovereign currency: gold is now the sovereign global currency and means of preserving wealth.
The fall of the Yen was most likely “coming”. Mike Mish Shedlock in article Currency Intervention Madness relates: “It has been proven time and time again that currency intervention does not work” …. Assuming Japan was going to have a “line of defense”, one near the 1995 is a spot (at 123) where there would be technical resistance anyway. If the Yen does drop in a sustained way, it will not be because of the intervention, but rather because the Yen had outrun fundamentals and was simply ready to drop”.
The fall of the Yen “had to be dramatic”; that is simply, “the way currency waves work”. A strong down was needed to boost the Nikkei 225, ^N225 up, resetting it for an Elliott Wave 3-of-3 to do its work. “This is the natural way of Elliott Waves”: there has to be a strong 2 up, as evidenced today September 15, 2010, so that the 3-of-3 down, can be the awesome thing that it is. And a "decisive end" had to come to support for the yen end carry trade investing long: its done, over and finished, well at least for a while.
Not only have the S&P and the NIkkei 225 been reset for falling lower, all stock markets now have been reset for their 3-of-3 downs. Get ready for investment, economic, and cultural “shock and awe”. Social hardship and chaos is coming. And out of this turmoil will come regional economic governance and Government Administration of finance, commerce, trade, banking, investment, lending and credit with a Financial Regulator overseeing all in each region.
The selling of Yen, by the bank of Japan was the biggest round of yen money-printing in six years. It will introduce a new dangerous round of competitive currency devaluations and stagnation across the industrialized world. The final one before full-blown inflation, where it will take ever increasing amounts of currency to buy even essentials like food. Such is the curse inflicted upon mankind by Milton Friedman who promoted the neoliberal "free to choose" and "floating currency" economic policies, which Nixon used to take the US off the gold standard, and conduct wars world-wide.
Commenced competitive currency deflation that is part of global debt deflation.
The coming 3-of-3 downs in stock markets, will be manifest as intense debt deflation. Debt deflation is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “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.”
Global Debt Deflation commenced on April 26, 2010, when the value shares failed to outperform the growth shares.
It was on April 26, 2010, the currency traders went long the yen and short the global currencies as is seen in this MSN Finance chart of FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, XRU, FXY causing the US Dollar to rise; as can be seen in this chart from April 26, 2010 to June 7, 2010.
On June 7, 2010, the US Dollar, $USD, turned down as the Euro, FXE, rallied on news of the call for the EFSF Monetary Authority to be established.
The fall of the Yen has turned off the only remaining spigot of investment liquidity; the other spigot of investment liquidity was the US Federal Reserve’s QE which ended for all practical purposes on March 31, 2010.
September 15, 2010 is a pivotal day in investment history. Not only have the spigots of investment funding been turned off. But now, carry trade activity will now be operating in reverse to deleverage. The carry trades will be like black holes sucking in and destroying capital.
Now with the fall of the Yen, the Global Elliott Wave 3-of-3 Down Wave can get underway to destroy wealth world wide: serious downdrafts will be coming to all financial and bond markets globally.
I personally am invested in gold bullion, $GOLD. But, I do provide a listing of ETFs and Stocks to sell short for a debt deflationary bear market; one suggestion is now to go short JYN. I agree with Tyler Durden Zero Hedge article Goldman Joins BofA In Calling For Sub-79 USDJPY Over Next 6 Months Despite Intervention who wrote: “The near-term risks are still skewed towards marginal additional $/JPY strength. A test of historic record lows below 79 appears possible, in particular if option related activity has the potential to accelerate a down move, as we have seen in the past. But in reality we are likely quite close to the bottom of $/JPY. Fundamental support for further Yen appreciation is fading as valuation starts to hurt trade flows, and rates differentials approach the lower bound. In this environment, the chances of “big splash” interventions eventually succeeding are quite high.Our forecasts remain 85 and 83 in 3 and 6 months, although we think a temporary move to marginal new lows is possible. Over a 12-month horizon, we maintain our “GSDEER reminder” and forecast $/JPY at 90.” Based upon those remarks, I recommend that one consider going short JYN as it will be falling from today’s value of 69. Mr Durden has additional thoughts on the USDJPY in article Banker Catfight: It’s On!
Also of timely note, Tyler Durden in Zero Hedge article FASB Proposes Semi-MTM Requirement, American Banker Association Goes All “Mutual Assured Destruction”: “The FASB has just fired a semi-warning salvo at the banking system with a new proposed rule that would seek the gradual return of that long lost concept known as mark-to-market. However, while not going all the way and demanding that everything on the balance sheet flowed through the income statement’s bottom line, the FASB has decided to give banks the leeway of accounting for MTM adjustment in the bottom bottom line” ….. “The American Bankers Association released a statement that said the accounting change would present “significant problems, not only for banks, but also the general economy. If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.” This new proposal is at odds with the previous FASB 157 announcement which entitled banks to mark assets at manager’s best estimate rather than mark them to market. So get ready for some real engagement between the FASB and the ABA, as I am sure the would like to continue more pretend and extend to keep the insolvent banking system afloat. I suggest that one go short real estate at this time; that is short with going short PSR, REZ, FIO, URE and DRN; going short these are high reward for low risk of investment.
I provide a link to my ChartList of Stocks and ETFs to sell short for a debt deflationary bear market which lists many opportunities at low risk, others at higher risk include shorting Inverse Volatility, XXV, and Ultra Semiconductors, USD.
Please understand, I am not a licensed investment professional and do not own a brokerage account or Forex account. I am invested in gold bullion as I perceive an investment demand for gold.
Race to the Bottom: Competitive Devaluations Across the G7 [View article]
Yes, it will introduce a new dangerous round of competitive currency devaluations and stagnation across the industrialized world.
Yes the final one before full-blown inflation, where it will take ever increasing amounts of currency to buy even essentials like food.
Such is the curse inflicted upon mankind by Milton Friedman who promoted the neoliberal "free to choose" and "floating currency" economic policies, which Nixon used to take the US off the gold standard, and conduct wars world-wide.
Using the Past to Predict the Future [View article]
Debt deflation came to bonds September 1, 2010, when the investors rejected the Fed's planned purchase of mortgage backed securities to support more "stimulate and spend". Investors had been going long in those bonds with greatest out maturity such as ZROS, TLT, and BLV.
The "mother of all bear markets" came to bonds on September 1, 2010; so the investor who goes long bonds, TLT, or BLV, will be caught off guard, by unexpected flattenings of the 30-10 yield curve,$TYX:$TNX, wiping out advances made in being long.
And now, as of the most recent trading day, September 10, 2010, I believe, the S&P, SPY, and the world stocks, ACWI, have completed an Elliott Wave 2 up and are ready to enter an Elliott Wave 3-of-3-of-3 down.
The Elliott Wave count on the S&P is ... 3 Down on April 26, 2010, 3-of-3 down on August 10, 2010. And now as of September 10, 2010, ready to go 3-of-3-of-3 Down.
The 3-of-3-of-3 waves are the most aggressive of all waves; they build wealth on the way up and destroy wealth on the way down.
On my profile page I've provided a link to a Stockcharts ChartList of ETF and stocks to sell short .... ZROZ is on that list. One would for example sell it short as it advances. Stocks should be sold short immediately before the opportunity to sell them escapes; an excellent choice Australia, EWA, which has had a good rise on AUD/JPY, that is FXA:FXY, carry trade investing.
In other words, stocks, being on the cusp of falling lower represent "the short selling opportunity of a lifetime".
Now with bonds having fallen lower we will see a continual see sawing destruction of bond and stock wealth; one is going to have to be an adept short seller. Debt deflation will progressively and continually wipe out bond and stock wealth. Traditional wealth will be literally sawn asunder by falling currency values, or better said, by unwinding carry trade investments.
Having said that I believe gold bullion offers a much better investment. And dips in the price of gold, that come, will be short lived, as investors escaping a flattening 30-10 US Debt curve, and unwinding yen carry trades, like the EUR/JPY, will be seeking the safe haven of physical gold.
Gold, Silver and Bonds [View article]
It may close below its 50dma very soon. This would be a good trading idea in a "traditional environment"; however, peak credit was attained August 31, 2010, when Bonds, BND, closed at 82.66; and when TLT closed at 108.24.
The next day September 1, 2010 marked the transition from “the age of neoliberal Milton Friedman and Alan Greenspan based credit liquidity” to “the age of the end of credit”. September 1, 2010, also marked ”the end of entitlements” and “the beginning of world-wide austerity”.
The 30-10 yield curve,$TYX:$TNX, began to flatten on August 11, 2010, reversing a trend that goes back to early 2000. This signals risk aversion to sovereign debt.
The flattening of the yield curve came as a result of the Federal Reserve Chairman’s announcement of August 10, 2010 of the purchase of mortgage-backed securities. Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt.
The Fed Chairman’s announcement of purchase of mortgage-backed securities caused the bond rally in US Treasuries, TLT, and Zeroes, ZROZ, HIgh Grade Corporate Bonds, LQD, that began April 6, 2010, to fail September 1, 2010, sending bond prices lower and interest rates higher as traders saw the announced purchase of mortgage-backed securities as a monetization of debt.
The safe haven rally in debt, and the low-interest rates available to corporations, that began with the onset of the European Sovereign Debt Crisis is over, repeat over and done, through and finished as investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as ZROZ.
Now that TLT has fallen to its 50dma, its like you suggest, one should, using traditional logic and buy TLT as stocks, VT, or ACWI, sell off. But, here is the big but, any run up in bonds will be short lived because of risk aversion to the Fed's plans to monetize the debt.
Debt deflation came to stocks April 26, 2010, when the currency traders sold the major currencies, DBV, and minor currencies, CEW, against the Yen, FXY. This commenced the "bear market of bear markets" in stocks.
Debt deflation came to bonds September 1, 2010, when the investors rejected the Fed's planned purchase of mortgage backed securities to support more "stimulate and spend".
So, the investor who goes long bonds, TLT, will be caught off guard, by unexpected flattenings of the 30-10 yield curve,$TYX:$TNX, wiping out advances made in being long.
The better trade is to wait for a rise in TLT, and go short in the long out ZROZ -- it has better movement than TLT.
The trading principle here is according to the maxim: In a bull market, the investor buys in dips; and in a bear market, the investor sells into strength.
"The bear market of bear markets" commenced in US Sovereign Debt on September 1, 2010.
And now, as of the most recent trading day, September 10, 2010, I believe, the S&P, SPY, and the world stocks, ACWI, have completed an Elliott Wave 2 up and are ready to enter an Elliott Wave 3-of-3-of-3 down.
The Elliott Wave count on the S&P is ... 3 Down on April 26, 2010, 3-of-3 down on August 10, 2010. And now as of September 10, 2010, ready to go 3-of-3-of-3 Down.
On my profile page I've provided a link to a Stockcharts ChartList of ETF and stocks to sell short .... ZROZ is on that list. One would for example sell it short as it advances. Stocks should be sold short immediately before the opportunity to sell them escapes. In other words, stocks being on the cusp of falling lower represents the short selling opportunity of a lifetime.
Now with bonds having fallen lower we will see a continual see sawing destruction of bond and stock wealth; one is going to have to be an adept short seller.
Having said that I believe gold bullion offers a much better investment. And dips that come will be short lived as investors escaping a flattening 30-10 US Debt curve, and unwinding yen carry trades will be seeking the safe haven of physical gold.
5 ETF 'Clusters' Celebrating 52-Week Highs [View article]
Telecom and Utilities are the traditional defensive sectors; and utilities have held their value as they pay dividends.
When one compares the chart of the mutual fund FAGIX which is comprised of distressed investments with JNK and Europe, FEZ, one sees that JNK rose together with both, up until FEZ fell to the European Sovereign Debt Crisis. Then of late, JNK has participated in a bond rally, and especially of late it has seen a flight to safety from a flattening yield curve in longer out corporate high grade and government bonds. But it does have significant fall potential: meaning, when it falls, it is going to fall fast and hard.
Thailand, THD, and Peru, EPU, have been safehavens as they are far removed from European Financial Institutions, which are burdened with contagion from the European Sovereign Debt Crisis, and banking issues and unemployment in Spain, and lack of trade in Portugal, and housing debt in Ireland, and unrevealed debt in Greece, etc, etc, etc.
Thailand and Peru are bastions of free enterprise; and Brazil is too; therefore it stands to reason that these do well. Furthermore the Asian and Latin America countries you mention have currencies which make up the developing currencies, CEW, have been outperforming the major currencies, DBV. Thus the countries have so far not experienced the debt deflation of Europe, FEZ.
You give sound caution: buy ”high” and sell “higher" -- in as much as we are in a market top of ALL stocks and ALL bonds, its neither the time to be invested in or buying the ETFs presented.
There are plenty of short selling opportunities and gold will continue to hold value as stocks and bonds suffer on going debt deflation.
I provide a free ChartList of short selling suggestions for those interested
stockcharts.com/def/se...
Risks Along the Yield Curve, Part 1 [View article]
You relate: "Now may be the time for investors to consider fixed income investments at the short-end of the yield curve to take advantage of the diversification benefits fixed income investing may offer, while seeking to mitigate interest risk. Investing outside of the US dollar may also prove beneficial, should present dynamics negatively affect US economic stability."
Yes, one may want to invest in the short end with the ETF SHY which would limit one's traditional exposure to the volatility seen it the longer out TLT, and BLV; but given what you say is "the likelihood of another financial catastrophe may have risen", I am more concerned about the return of my investment than the return on my investment. And I want to be completely out of the dollar, and into gold and am willing to accept the volatility risks there of. I see gold mining stocks as very volatile, and history indicates that these turn lower when US Treasuries in the futures market, $USB, turns lower, as is seen in the chart of $HUI:$USB.
You relate: "The government has issued vast amounts of longer duration notes and bonds."
I am very concerned about this, as investors may choose to exit from the longer out government debt, in large numbers at the same time, causing a drop in their value.
Also, new buyers may not come to the bond market. Perhaps the bond market is a type of ponzi scheme. New buyers may simply say no to the US Government deficity policy of "stimulate and spend"; and there could be a series of failed US Treasury auctions. Then the value of the longer out debt would fall fast and hard, wiping out a considerable portion of the investors portfolio.
Going back to your statement: "The government has issued vast amounts of longer duration notes and bonds."
I have to agree. Doug Noland of Prudent Bear, says there is a debt bubble, I have to agree. I've decided to be as far away from the fiat asset market as possible and put what little assets I have into gold bullion.
Tuesday ETF Roundup: XLF Sinks, BLV Continues Rally [View article]
Your article is timely because on September 1, 2010, debt deflation came to bonds, complementing the debt deflation that came to stocks on April 26,2010.
Thus, we will now have a see-saw destruction of fiat wealth, meaning BLV will at times be going down; then XLF will be going down; these two will be alternating going down, destroying one's traditional form of wealth, literally cutting it asunder.
I am invested in gold bullion to protect my self from debt deflation which comes from currencies falling lower in price; gold with perhaps for now the Yen and the Swiss Franc, has arisen to be the sovereign currency.
I would like to present my view that holding debt of any kind, even high grade corporate debt, exposes one to the risk of loss of principle as interest rates go higher. I believe that interest rates were called higher by the markets on September 1, 2010, in response to the US Federal Chairman Ben Bernanke announcing intentions to buy mortgage backed securities on not only one occassion but on two occassions.
BLV, fell parabolically lower on September 1, 2010, with the purchase of the yen based carry trades, on September 1, 2010, which rallied stocks, ACWI; and turned the tide on bonds, BND, sending them lower, establishing August 31, 2010 as a high in bonds at 82.66, that is, ”establishing August 31, 2010 as peak credit” … bond deflation has been underway since September 1, 2010.
BLV peaked on August 26, 2010 at 87.25. It has the same wave structure as BND; so any comments about bonds, BND, apply directly to BLV as well.
Going over to MSN.com and sorting on the 3 year returns, BLV shows 9.60 %, which is quite good; going all the way to the bottom are such things as Natural Gas and Financial Services, which is quite bad.
I believe that BLV's returns will be influenced by a flattening of the 30-10 US Sovereign Debt Curve, and by CDS on corporate bonds, and bonds of all types.
The interest rate on the 30 Year US Government bond, $TYX, rose strongly September 1, 2010.
And the interest rate on the US 10 Year Note, $TNX, also rose strongly September 1, 2010.
September 1, 2010 marks the transition from “the age of neoliberal Milton Friedman based credit liquidity” to “the age of the end of credit”; this also means ”the end of entitlements” and “the beginning of world-wide austerity”.
The 30-10 yield curve,$TYX:$TNX, began to flatten on August 11, 2010, reversing a trend that goes back to early 2000.
This signals risk aversion to sovereign debt. The flattening of the yield curve came as a result of the Federal Reserve Chairman's announcement of August 10, 2010 of the purchase of mortgage-backed securities. Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt.
This caused the bond rally in US Treasuries, TLT, and Zeroes, ZROZ, as well as BLV, that began April 6, 2010, to fail September 1, 2010, sending bond prices lower and interest rates higher.
The safe haven rally in debt, and the low-interest rates available to corporations, that began with the onset of the European Sovereign Debt Crisis is over, repeat over and done, through and finished. Investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as ZROZ.
I believe a sovereign debt, read TLT, crisis, is coming soon, as well as a global financial collapse, where there will be no liquidity to buy or sell paper assets; I want something liquid like gold of silver as an investment.
Systemic risk is quite high. Liquidity evaporation could happen quite easily, either coming through a failed Treasury auction or a situation where there may not be enough buyers of investment securities to meet sellers demand.
I believe that soon, out of a liquidity evaporation and a bond, BND, 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 the intensity of onset of the coming credit crunch will come with a great rush and that the corporate bond market, BLV, will shut down very quickly. Like I say, I believe a lending boss will be announced and pretty much only natural resource companies and defense contractors and food producers will have credit liquidity.
Furthermore, I see a coming ”see-saw” exhaustion of fiat wealth with stocks, ACWI, and then bonds, BND, alternatively falling lower. There may be days when both fall lower. The chart of Bonds, BND, for September 7, 2010 shows three black crows, with a fall in value to a head and shoulders pattern at roughly 82.00 and then a rise to 82.44.
The chart of world stocks, ACWI, as well as the S&P, SPY, as of September 7, 2010, shows that the world stocks enter an Elliott Wave 3 of 3 of 3 down having completed a three white soldiers pattern, and a one day down --- ACWI closed down 1.28% and SPY closed down 1.13% on September 7, 2010.
As the value of stocks falls lower, so will the value of corporate bonds, as they will fall under the influence of a flattening 30-10 US Treasuries curve, $TYX:$TNX seen in Stockcharts.com chart.
You remark that BLV, "spreads exposure across different sectors of the investment grade bond market, invests primarily in securities with at least 20 years to maturity" .... This is exactly the part of the maturity curve that will experience the greatest devastation. Yes lots of devastation to come in BLV, just like in TLT and ZROZ as they all are furhter out on the yield curve.
In summary, I have to ask, got gold? like gold bullion hidden away? I do!
Corporate Bond Duration Risk Reaches All-Time High [View article]
I will preface my remarks by relating that my money has been going and will continue to go where I believe it will be the safest. I am not concerned about the return on my money; rather I am concerned about the return of my money. Therefore, I am invested in gold bullion which has no interest rate of return. I keep the gold well secured to prevent its loss.
Having said that I would like to present my view that holding debt of any kind, even high grade corporate debt, exposes one to the risk of loss of principle as interest rates go higher. I believe that interest rates were called higher by the markets on September 1, 2010, in response to the US Federal Chairman Ben Bernanke announcing intentions to buy mortgage backed securities.
High grade corporate debt, LQD, fell parabolically lower on September 1, 2010, with the purchase of the yen based carry trades, on September 1, 2010, which rallied stocks, ACWI; and turned the tide on bonds, BND, sending them lower, establishing August 31, 2010 as a high in bonds at 82.66, that is, ”establishing August 31, 2010 as peak credit” … bond deflation has been underway since September 1, 2010.
High grade corporate debt, LQD, peaked on September 1, 2010 at 112.58. It has the same wave structure as BND; so any comments about bonds, BND, apply directly to LQD as well.
Going over to MSN.com and sorting on the 3 year returns, LQD shows 7.57%, which is quite good; going all the way to the bottom are such things as Natural Gas and Financial Services, which is quite bad.
I believe that LQD’s returns will be influenced by a flattening of the 30-10 US Sovereign Debt Curve, and by CDS.
The interest rate on the 30 Year US Government bond, $TYX, rose strongly September 1, 2010.
And the interest rate on the US 10 Year Note, $TNX, also rose strongly September 1, 2010.
September 1, 2010 marks the transition from “the age of neoliberal Milton Friedman based credit liquidity” to “the age of the end of credit”; this also means ”the end of entitlements” and “the beginning of world-wide austerity”.
The 30-10 yield curve,$TYX:$TNX, began to flatten on August 11, 2010, reversing a trend that goes back to early 2000.
This signals risk aversion to sovereign debt. The flattening of the yield curve came as a result of the Federal Reserve Chairman's announcement of August 10, 2010 of the purchase of mortgage-backed securities. Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt.
This caused the bond rally in US Treasuries, TLT, and Zeroes, ZROZ, HIgh Grade Corporate Bonds, LQD, that began April 6, 2010, to fail September 1, 2010, sending bond prices lower and interest rates higher.
The safe haven rally in debt, and the low-interest rates available to corporations, that began with the onset of the European Sovereign Debt Crisis is over, repeat over and done, through and finished. Investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as ZROZ.
I believe a sovereign debt, read TLT, crisis, is coming soon, as well as a global financial collapse, where there will be no liquidity to buy or sell paper assets; I want something liquid like gold of silver as an investment.
Systemic risk is quite high. Liquidity evaporation could happen quite easily, either coming through a failed Treasury auction or a situation where there may not be enough buyers of investment securities to meet sellers demand.
I believe that soon, out of a liquidity evaporation and a bond, BND, 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 the intensity of onset of the coming credit crunch will come with a great rush and that the corporate bond market, LQD, will shut down very quickly. Like I say, I believe a lending boss will be announced and pretty much only natural resource companies and defense contractors and food producers will have credit liquidity.
Furthermore, I see a coming ”see-saw” exhaustion of fiat wealth with stocks, ACWI, and then bonds, BND, alternatively falling lower. There may be days when both fall lower. The chart of Bonds, BND, for September 7, 2010 shows three black crows, with a fall in value to a head and shoulders pattern at roughly 82.00 and then a rise to 82.44.
The chart of world stocks, ACWI, as well as the S&P, SPY, as of September 7, 2010, shows that the world stocks enter an Elliott Wave 3 of 3 of 3 down having completed a three white soldiers pattern, and a one day down --- ACWI closed down 1.28% and SPY closed down 1.13% on September 7, 2010.
As the value of stocks falls lower, so will the value of corporate bonds, as they will fall under the influence of a flattening 30-10 US Treasuries curve, $TYX:$TNX seen in Stockcharts.com chart.
You relate: “Bloomberg reported today that bondholders might suffer record losses in their investment in corporate bonds when policy makers start to raise interest rates” ... The way I see it, investors have begun NOW to record losses upon remarks of the Fed Chairman.
You relate: “The duration on corporate debt, which indicates the price sensitivity of the bond with changes in its yield, rose to a record high of 5.69 years as of end of August. The fact that bonds maturing more than 10 years from now made up more than 39% of sales last month as companies took advantage of borrowing at low costs makes bondholders more vulnerable given a higher exposure to high duration bonds” .... My interpretation of the facts you present is that investors have sought better returns by going out into longer duration. As the 30-10 Yield US Sovereign curve flattens, I believe the interest rate on the bonds you mention will go up and that investors will massively flee from the referenced bonds.
You mention: “CDS for European corporate bonds is rising, while banks in Europe offered around 8 billion euro of bonds for sale, the most in five weeks” ... My comment is that I see a trinity of forces actively destroying financial wealth as opposed to wealth held in gold. The first is unwinding yen carry trades that commenced April 26, 2010, as reflected in small cap pure value shares falling significantly compared to small cap pure growth shares, ie the RSV:RZG ratio. The second is the flattening of the 30-10 Sovereign Debt Curve, which commenced August 10, 1010, as seen in $TYX:$TXN falling. And the third is recent rise in CDS you mention.
You write: “Although interest rates are at low levels and expected to stay low for a longer period, increased borrowing at low rates by companies is exposing bondholders to the eventual risk of drop in prices when interest rates rise.” .... I have no expectation that interest rates will stay low. While the US Federal Reserve may keep its rate low. Buyers of US Government Debt, if there be any, will want higher rates, $TYX and $TNX.
I do appreciate your article, and the facts presented; please keep writing.
Market Watch: Time to Stick My Head in the Sand [View article]
We are on the very cusp of "the short selling opportuntiy of a lifetime".
I do have to say, I do not trade, as I believe a liquidity crisis going to emerge, where there will not be enough buyers to meet sellers demand. Therefore I stored up on gold bullion.
I suggest that one be short the miners, especially the junior gold miners, GDXJ. Gold stocks, GDX, are in the process of disconnecting from the price of gold; and research shows that at past market turns lower in Treasuires, ZROZ, the gold mining stock turn lower as well. So not a good time to be invested in stocks of any kind.
So here is my short sellling list which can be seen at
Stockcharts.com ChartList
stockcharts.com/def/se...
EWA Australia 5.9%
KBE Banking 5.6%
BZ Boise 10.0%
BRF Brazil Small Caps 2.5%
CMG Chipotle Mexican Grill 6.8%
DE Deere 6.2%
FDN Dow Jones Internet 4.9%
EUFN European Financials 5.5%
EXPD Expeditors 6.1%
ITB Housing 5.0%
FIO Industrial And Office Real Estate 6.3%
HHH Internet 6.0%
EIRL Ireland 4.9%
GDXJ Junior gold mining companis 5.6%
LVS Las Vegas Sands 5.8%
LCAPA Liberty Media 7.5%
EWW Mexico 4.5%
KME Mortgage Finance 7.7%
NNI Nelnet 2.0%
N NetSuite 7.9%
PXN PowerShares Lux Nanotech 3.6%
PGX PowerShares Preferred 0.5%
PSR PowerShares Real Estate 4.1%
PPD PowerShares Retail 7.2%,
REZ Residential Real Estate 6.0%
IWN Russell 2000 Value 4.4%
XSD Semiconductors 2.6%
XLYS Small Cap Consumer Discretionary 6.0%
TAN Solar 7.5%
EWP Spain 5.3%
EWD Sweden 4.5%
JJT Tin -2.3%
Debt ETFs for a debt deflationary bear market include:
TMV 300% Inverse Of 30 Year Treasury 4.0%
TBT UltraShort 30 Year Treasury 2.4%
ZROZ Zeroes -3.2%
CMF California Municipal Bond -0.3
MUB Municipal Bonds -0.2%
Stocks, Commodities, Forex: Key Market Drivers, September 6 - 10, 2010 [View article]
The FX currency traders rallied the major currencies, DBV, a stunning 6.0%, for the week ending September 3, 2010; taking them back to the middle of a broadening top pattern going back to October 2009. And they rallied the developing currencies, CEW, 1.1%, taking them back to the middle of a broadening pattern going back to November 2009. Thus, the currency traders reset both currencies and stocks for falling.
The currency traders action gave birth to a rally, mostly but not exclusively, in those stocks that had been sold off heavily since April 26, 2010. The surging currencies “rallied the weakest”, that is the most risky and shaky of stocks and ETFs; a case being PowerShares S&P Small Cap Consumer Discretionary, XLYS, rose 6%.
The ratio of major currencies, relative to developing market currencies. DBV:CEW, rose a breathtaking 6.1% today. In just one day, the ratio of major currencies relative to developing currencies, was brought back to its pre European Sovereign Debt Crisis level. The chart shows today’s action “burst the ratio up” from a head and shoulders pattern and “took the ratio up and out” of a consolidation triangle.
The South African Rand, SCR, rose 1.6%; the New Zealand Dollar, BNZ, 1.5%; the Canadian Dollar, FXC; the Mexico Peso, FXM, 0.9%; it is rolling over, the Swedish Krona, FXS, 1.8%, it rose to the middle of a broadening top pattern going back to mid July 2009, all I can say is lookout below both for the Krona and the Sweden shares, EWD; the Australian Dollar, FXA, 2.0%, to make for a triple high in this currency; the Brazilian Real, BZF, 1.3% manifesting three white soldiers to a new all time high; the Euro, FXE, 1.3%; the Ruble, XRU, traded unchanged on a ledge of support just above 32, there is nothing but thin air below; the British Pound Sterling, FXB, has dribbled lower to trade above a ledge of support at 153; the Indian Rupe, ICN, 1.3%; Swiss Franc, FXF, 1.2%.
The Japanese Yen, FXY, rose 1.1% to close at 117.28, it has risen from 105 since March of this year, its rise is the anti-thesis of investing long; its rise as shown in the monthly chart, has caused a terrific unwinding of yen carry trade investing in stocks, VT, and commodities, DBC.
And now a flattening yield curve, seen in the ETF Flattner, FLAT, will act to destroy bonds, whether they sovereign debt, corporate debt, or municipal debt.
Debt deflation, commenced April 26, 2010 in stocks ...... and commenced September 1, 2010 in bonds. In just three days, Zeroes, ZROS, fell 8.0%, US Government Bonds TLT, fell 4.5%, and the US Treasury Note, IEF, fell 2% as seen in Yahoo Finance chart …. ZROZ, TLT, IEF.
So now the financial market has commodity, stock and bond deflation going, all thanks to the currency traders selling out of yen carry based trades, and investors dropping out of a steepening yield curve.
The action of the currency traders in calling the major currencies higher this last week has reloaded and restrengthened the ability of yen carry trade investing to unleash a severe bout of yen carry trade disinvestment.
The chart of the S&P, SPY, shows that an Elliott Wave 3 Down commenced 4-26-2010; and that a Wave 3 of 3 Down commenced on 8-10-2010. An inquiring mind asks: “has the major currencies rally brought the S&P higher to the point of a likely 3-of-3-of-3 downturn”? I have to answer in the affirmative.
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