Is a Steep Yield Curve Leading Us Astray? [View article]
A strengthening yield curve heralds investment and economic deterioration.
Stockcharts.com shows that the chart of the yield curve, $TYX:$TNX, has been steepening since April 26. Genuine investors are going to shy away from US Treasury auctions. Proxy investors, that being banks in London and in the US are going to buy US Treasuries for the Fed. This will monetize the debt causing IEF and TLT and ZROS to fall. Soon there will be a US Treasury auction failure and/or not enough money at the US Treasury to pay bills. As a result there will be a flight from fiat investments. A liquidity evaporation will occur as there will not be enough buyers for sellers. One may not be able to obtain from one's money market accounts and brokerage accounts.
On April 26, 2010, global debt deflation commenced, when the currency traders heavily sold the EUR/JPY causing stocks to fall globally. In a debt deflationary environment, a strengthening yield curve cannot produce growth, it only intensifies debt deflation.
On June 7, 2010, the currency traders went long the EUR/JPY providing two weeks of financial recovery. But on June 22, 2010, the traders reverse and the bear stock market recommenced. So it's going to be more debt deflation.
On June 22, 2010 the yield curve stockcharts.com/h-sc/u... strengthened again, so we are going to have more investment and economic deterioration.
'Euro-Copter' Lifts the S&P Higher; Bonds Aren't on Board [View article]
Thanks for the helpful article. I have several comments.
First, much like your article title suggests, it has been the currency traders going long the EUR/JPY driving the S&P up; but all kinds of risk abounds from sovereign debt, from falling high risk debt, from banks not trusting each other and depositing funds at the ECB nightly, from banks not lending or being simply unable to lend.
Second here is a lenghty but helpful article written by Martin Santa in Reuters article Slovaks Risk EU Safety Net Delay By Failing To Sign Off write that Slovakia rejected on Friday June 18, 2010 calls to sign Europe’s 750 billion euro stability programme, a necessary step for the financial safety net to go ahead, amid political wrangling.
Slovakia’s rejection could jeopardise European finance ministers’ plan for the facility to be operational by the end of June.
Slovakia was asked during a European Council meeting in Brussels on Thursday to sign the deal.
Outgoing Prime Minister Robert Fico, however, said his government lacked a mandate to do so.
He said it was ready to sign if given the nod by centre-right parties that are trying to form a government after winning elections last week.
“We are ready to sign if they say ‘Yes, we respect that mechanism’,” Fico told a news conference on Friday.
Pressure has been building on Slovakia from abroad to take at least the first step and sign off on the facility.
“We are confident that the prime minister and the new government know their European responsibility”, a German government spokesman said on Friday.
Slovakia is due to contribute around 4.5 billion euros to the 750 billion euro financial safety net, which was established by euro zone governments this month for member countries if they run into financial difficulty.
OPPOSITION TO GREEK AID
The issue has become the centre of a domestic political struggle between Fico’s leftist administration, which lost its majority in the election, and centre-right parties, who have opposed European aid to Greece.
The conservative Christian Democrat Union (SDKU), the Christian Democrat Movement (KDH), the liberal Freedom and Solidarity (SaS) and the mostly ethnic Hungarian party Most-Hid have been negotiating to form a cabinet but have not yet won an official mandate from President Ivan Gasparovic.
The SDKU’s election leader and the likely next prime minister, Iveta Radicova, said Fico had full authority to sign off on the EFSF.
“Slovakia’s prime minister and the government have a full (power) to decide (on the EFSF),” Radicova told reporters earlier on Friday.
She declined to ask Fico to sign the plan and refused to comment on how she would decide.
Finance Minister Jan Pociatek slammed the opposition stance.
“This is like playing with an atomic bomb. It is unpredictable what could happen if the mechanism will not be available on time,” he said.
Slovakia needs to sign the agreement on the EFSF but can later decide not to participate in the aid mechanism without preventing other countries from going ahead.
Once 90 percent of all the mechanism’s guarantees are confirmed by participating countries, the aid scheme can become operational.
Slovakia has a separate problem concerning the 110 billion euro EU/IMF bailout package for debt-laden Greece.
The country, which joined the euro zone in 2009 and is much poorer than Greece, is due to vote next month on its 800 million euro contribution to the package. But, before the election, the centre-right parties refused to say whether they would commit Slovakia’s share to the bailout should they take power.
Spain May Be the Next Domino to Fall [View article]
The chart of Spain, EWP, and the Russell 2000, IWM in late day trading shows these to be buoyant on a rising and now steady EUR/JPY, ever since June 7, 2010
The fact that Spanish banks are turning to the European Central Bank as a lender of last resort documents that a sovereign central bank exists in the eurozone and that a centralized and unified government is in place in Europe. Spain has lost its banking and commercial credit sovereignty: credit comes from the ECB, and Mr. Trichet is Spain’s Banker and Credit Officer.
We will have more clarity after the Thursday Government Bond sale and Friday's conclusion of the Van Rompuy led EU Finance Ministers Task Group Session
I am of the opinion that if the EFSF issues US Dollar denominated eurobonds, and not Euro denominated eurobonds, then this would indicate a growth of global governance, in effect creating a “central bank of the world”, that is a “global central bank”. Dollar denominated bonds would be the precursor for what Timothy Geithner called: :unified regulation of banking globally”, as documented in June 8, 2008 James Politi and Gillian Tett Financial Times article Fed Chief In Push For Global Bank Framework. Also dollar denominated EFSF bonds could enable the US Federal Reserve, or its proxy banks, to liquify and stabilize European monetary, banking and lending markets to the detriment of US taxpayers and the sovereignty of the United States.
I would use the term “funding” for the EFSF, cautiously as I do not see any flow of funds, simply a committment to honor the EFSF’s debt. It is striking that a non government entity, an agency, is using seigniorage to create sovereign debt. The announcement of the EFSF by the EU Finance ministers at May 2010 summit, and now its creation by committment of nations to honor its debt, establishes the EFSF as the sovereign monetary authority for a Eurozone economic government. The EFSF becomes the Eurozone’s Treasury. The ECB is the Eurozone’s central bank, as nation states submit ever-increasing deposits there nightly. Clearly there is now a centralized monetary and banking authority in Europe, which establishes the eurozone as a region of global governance. National sovereignty was waived by Announcement of the May 2010 EU Finance and State Leaders Summit. One is no longer a citizen of sovereign nation state, rather one is a resident of a region of global governance.
The issuance of eurobonds by the EFSF not only creates a hierarchical and unified government in the Eurozone, but it also depreciates the AAA sovereign debt rating of Germany and others. And the issuance of eurobonds, creates more of what the world does not need, that being debt. Issuing more debt to assist in a debt crisis, monetizes the sovereign debt of all participating countries. This is inflationary and destructive to the value of the sovereign debt of the participants.
April 26, 2o10, marked the tipping point into global debt deflation, when short sellers successfully sold the markets short, and equities fell in value; until on June 7, 2010 when the currency traders ran the Euro, FXE, higher, and took the EUR/JPY, higher, causing European, FEZ, Spain, EWP, Austria, EWO, and Italy, EWI, to soar; as well as to make the Russell 2000, IWM, rise.
Today the bear market may be recommencing as the bear market ETFS, BOM, BZQ, EEV, EPV, FXP, JPX, SCO, SIJ, SJH, SMN, SRS, SSG are making some limited upward direction.
The European sovereign debt crisis has created an investment demand for gold, and a presumed flight to safety in US Treasuries, as IEF, TLT, ZROZ, TIP, are rising today; making the Direxion 300% inverse of 30 Year US Treasuries, TMV, fall towards its June 7, 2010 low of 45.49.
Thanks for the report --- it is most timely --- and it's the key that unlocks many doors and provides insight into monetary, fiscal, currency and stock market action.
I . Your Spanish Echoes report showing bond spreads are widening for Spain and other peripheries, suggests that the European sovereign debt crisis is worsening, and that the recent gains in the Euro, FXE, and European stocks, FEZ, cannot be sustained.
The widening peripheries bond spread presents a headwind for the currency traders to go long the Euro, FXE, and short the yen, FXY. The recent gains in the EUR/JPY carry trade are unlikely to be maintained. The unwinding of the EURJPY carry trade will cause disinvestment from Spain, EWP, Austria, EWO, and Italy, EWI shares.
II … Yahoo Finance charts show Spain, EWP, trading volatily, while Austria, EWO, and Italy, EWI, falling in early morning trading.
III .. MSN Finance shows the 200% bear of the credit sensitive US Russell 2000 shares, SJH, rising on adverse reaction to the widening european sovereign debt bond spreads.
IV. Yahoo Finance shows the Euro, FXE, and the Swiss Franc, FXF, which gapped open higher, are now falling and the US Dollar Bull ETF, UUP, rising in early morning trading.
V. Yahoo Finance shows the Euro Yen carry trade, FXE:FXY, falling, suggesting an unwinding of yen carry trade investment in European stocks is at hand.
VI. MSN Finance shows volatility, VXX, rising in early morning trading; this after having fallen since June 7, 2010 when the Euro rally began.
VII. The stockcharts.com chart of $TYX:$TNX, shows a rising yield curve since April 26, 2000 indicating risk aversion to investing in longer out US Debt. The rising yield curve presents a headwind for the credit sensitive Russell 2000 stocks, IWM.
Interest Rate Spreads Not Supportive of the Stock Rally [View article]
Thanks for the timely and helpful article.
Your two charts reflect debt deflation that commenced with the onset of the European sovereign debt crisis.
You relate: "the rate spread between Moody's BAA and AAA corporate bonds has been widening since March".
And you relate: "the rate spread between Moody's AAA corporate bonds and ten-year US Treasuries has been widening" (as well since the same time, I remark).
These credit market headwinds gave short sellers the opportunity to short on April 26, with SJH, that is 200% inverse of the Russell 2000.
But short sellers' profits were wacked when the Euro, FXE, started to rise on June 7, 2010 from 118.80; it closed today, June 16, 2010 at 122.63.
The investor should stand ready to go short with SJH as the credit headwinds may resume.
The financially sensitive Russell 2000, $RUT, closed at 666. Its ETF, IWM, closed at 66.68; this goes back on the weekly charts to January 3, 2006.
The Russell 2000 are small cap companies that depend upon fluid access to low cost credit.
Credit headwinds were only deflected by a rising Euro, FXE.
The lever on stocks of late, has been the euro-yen carry trade. The stocks have been buoyant of the euro-yen carry trade, meaning they have been getting a lift or bounce up from the EUR/JPY.
Yahoo Finance shows a close of the euro yen carry trade EURJPY at 112.46.
So a move in stocks will come mostly, from the carry traders going long the EURJPY from 112.46. Likewise, a move down will come from those financed by the 0.25% interest Bank of Japan loans, going short the Euro, FXE, relative to the Yen, FXY.
Institutional short sellers should consider entering a broad spectrum of the Proshares 200% inverse ETFs such as: BOM, BZQ, EEV, EPV, FXP, JPX, SCO ,SIJ, SJH, SMN, SRS, SSG
Also institutional short sells should consider entering the Direxion 300% inverse ETF TMV, which 300% inverse of the 30 Year US Govenment Bonds.
The credit headwinds that your charts show, started to blow adversely with as I mentioned, the onset of the European sovereign debt crisis which reflects debt deflation.
Debt deflation is consequence of credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is that “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.”
Gold, GLD, is the best means of personal wealth preservation against debt deflation. It is now outperforming silver, SLV, which like the HUI precious metal mining stocks, GDX, have disconnected from the price of gold and fallen lower; this is the natural outcome of the commencing of the process of debt deflation. MSN charting shows that the gold mining stocks and silver disconnected from the price of gold on May, 12, 2010.
Bearish Sentiment Approaching July 2009 Highs [View article]
I ... Well frankly there is much to be bearish about, as Ambrose Evans Pritchard relates in article Spanish Debt Wilts Amid €250bn Rescue Plan Confusion: “Mr Jenkins said it is unclear how the EU would finance a full rescue for Spain. Under the Greek formula, the EU-IMF ratio of aid is 8:3, implying an EU share of around €180bn – with a risk that the sums will escalate. The number of eurozone states available to fund the package is shrinking.
“The issue here is political risk. If they keep bailing out countries, it will mean printing money: that is not going to go down well in Germany,” he said.
Theodora Zemek from AXA Investment Managers said any rescue will have knock-on effects on the credit ratings of donor states. “Germany and France risk going from AAA to AA,” she said.
The original hope behind the EU’s €750bn “shock and awe” headline was that the announcement of such sums would end all doubts about the political solidarity behind the euro project, but nationalist body-language from EU capitals and daily spats between France and Germany have sapped confidence.
What haunts markets is fear that Spain may be the last line of defence. There can be no easy rescues after that because the money will run out. If investors ever start to question Italy’s public debt – the world’s third largest – they may face a sovereign version of the Credit Anstalt crisis of 1931. So far, Italy has remained as strong as a rock.
II … And at the close of trading today Wednesday, June 15, 2010, we wait for a decision as to what the currency traders will do: either call the markets higher or lower with the EUR/JPY. The market decision will be made Thursday, Friday, Monday and Tuesday.
III .. Today, the financially sensitive Russell 2000, $RUT, closed at 666; its ETF, IWM, closed at 66.68; this goes back on the weekly charts to January 3, 2006.
Yahoo Finance shows a close of the euro yen carry trade EURJPY at 112.46.
The lever on stocks of late, has been the euro-yen carry trade. The S&P has been buoyant of the euro-yen carry trade, meaning it has been getting a lift or bounce up from the EUR/JPY. So a move in the S&P, SPY, up from today’s 111.96, will come mostly, from the carry traders going long the EURJPY from 112.46. Likewise, a move down in the S&P will come from those financed by the 0.25% interest Bank of Japan loans, going short the Euro, FXE, relative to the Yen, FXY.
Institutional short sellers should consider entering the Proshares 200% inverse ETFs such as: BOM, BZQ, EEV, EPV, FXP, JPX, SCO ,SIJ, SJH, SMN, SRS, SSG
Also institutional short sells should consider entering the Direxion 300% inverse ETF TMV, which 300% inverse of the 30 Year US Govenment Bonds.
Gold, GLD, is the best means of personal wealth preservation. It is now outperforming silver, SLV, which like the HUI precious metal mining stocks, GDX, have disconnected from the price of gold and fallen lower; this is the natural outcome of the commencing of the process of debt deflation. MSN charting shows that the gold mining stocks and silver disconnected from the price of gold on May, 12, 2010.
A breakdown occurred in the US Dollar, $USD, June 14, 2010 as Moody’s downgraded Greece debt to junk -- this introduced the age of debt deflation and competitive currency deflation with the result that all currencies are going to tumble lower together. At times some will be up and the dollar down; then vice versa; as they all go lower into the Pit of Investment Abandon.
On June 14, 2010, the EUR/JPY closed up at 111.96 according to Yahoo Finance and 111.96 according to Forex-ex and it went up again June 15, 2010 as currency traders had already built in awareness of Greece's issues and wanted to take profits and go long to start a recovery and a start new trading wave for their advantage. The rise in the Euro, FXE, sent the US Dollar, $USD, down.
The US Treasuries, IEF, TLT, and ZROZ, fell lower as debt deflation manifested in the US Government bonds; the chart of the US 10 year Government Note, IEF, shows a massive dark cloud cover candlestick.
The US Dollar Bull ETF, UUP, and the US Dollar, $USD have turned parabolically lower. The days of finding safe haven investment in the US Treasuries are over.
The age of debt deflation features competitive currency, stock and debt deflation, with investors finding safe haven in gold.
OIl, USO, and Platinum, PPLT, look washed out, because that is exactly what happened: yen carry trades unwound.
Comparing Silver, SLV, to Gold, GLD, one can see just how much of a yen carry trade darling this use to be. It was very manic, as it came under day trading by those with yen carry trading funding. But now, as risk aversion has increased, it is NOT an investment metal like gold; it is a base metal and trades like basic material stocks. Over the years, I kept hearing buy silver because it out performs gold. Well the Silver and Gold chart lay to rest the idea that silver is a buy and hold investment. I’m glad I invested in gold coins.
Copper, JJC, is a base metal commodity; and it turned down on news of China bank tightening.
Finally gold, GLD, is special because not only is it a commodity but commodity; and will perform well as a safe haven investment in the age of debt deflation; yes gold will be going onward and upward
Does the Bounce in the Euro Signal All Is Well? [View article]
Yes, there is mores escalating Greek sovereign debt and it is good to question how are the Greeks going to dig themselves out of what was an already deep and now deepening hole.
The fact is they cannot dig themselves out. One of the most famous quotations of Austrian economist Ludwig von Mises is that “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.” John Hara provides the details of debt deflation in article Into The Abyss: The Cycle Of Debt Deflation posted in Gold Speculator as well as posted in 24HGold.
The bottom line, with respect to Greece, is that the Annoncement of EU Finance Ministers Euro bilateral loans, which is really seigniorage aid, is only an unwise extend and pretend operation which bought some time before more serious problems arise.
Moody's downgraded Greece's debt to junk. In one respect the EU Finance Ministers should have let Greece default, but then the Euro would have collapsed overnight to parity with the US Dollar. So a slow death is better than a heart attack and stroke. At least the patient gets some life, before it finally has the massive attack.
Latest EU Debt Crisis: 3 Reports Say Spain Is Seeking Aid [View article]
Thanks for the detailed and timely article; First, I will provide the news; and secondly my comment.
1) First, the news from OpenEurope.org reports via email newsletter:
The Spanish newspaper El Economista reports that experts from the EU, IMF and the US Treasury are drawing up an emergency liquidity plan for Spain, including a credit line up to €250 billion. “The solution outlined for Spain will benefit from the resources of the bail-out fund of the Union and a contribution from the IMF, consisting of a credit line that the fund provides to countries with solvent economies but at risk of contagion”, the article reads. However, Reuters quotes Amadeu Altafaj Tardio – a spokesman for EU Commissioner Olli Rehn – describing the report as “very bizarre”, and adding: “I can firmly deny it”.
Meanwhile, El Pais reports that the Spanish government will today launch its plans for labour reform, entering into force immediately, although none of the Parliamentary groups has guaranteed its support so far. As a result, the text might fall short of reaching the required majority when the Spanish Parliament votes on it next Tuesday.
AFP reports that the Commission yesterday told Spain that it must introduce extra austerity measures of around 1.75 percent of GDP in its 2011 budget to meet its deficit reduction targets.
The FT reports that Spanish banks are borrowing record amounts from the ECB, €85.6 billion last month, as they struggle to gain funding from international capital markets. Francisco González, chairman of BBVA – the second largest Spanish bank – is quoted in the Telegraph admitting that “the majority of the Spanish companies and financial groups are shut out of the international capital markets”.
A leader in the FT also argues: “While the government can cut its own borrowing, it can do less to resolve the private sector’s woes. Within monetary union, Spain has surrendered its ability to extend liquidity unilaterally. The private sector borrowed excessively during the boom – mainly to fund house building rather than productive investment. Consequently, there are a lot of bad debts, in both the corporate and banking sector. These undermine the ability of healthy companies to attract funding”.
2) Second my comments, that Spain has zombie banking and lending markets; it is a zombie state in a region of global governance.
Well this may news may NOT be enough to turn down the EUR/JPY which has risen from 109 on June 7th, 2010 to today’s pre stock market open of 112.08; but it might be enough to turn the european stocks, FEZ and the European financial institutions, EUFN, and STD, down today, which rose 10%, 10% and 20% in four days of trading, that is since June 9, 2010.
Currency traders called the markets higher yesterday June 15, 2010; and much higher in the case of STD which gapped open 5% higher and then closed 7% higher. This is investment surrealism and denial of reality, in other words a last gasp of investor exuberance, before the reality of debt deflation caused by the European sovereign debt problems settle-in, as Robert Wenzel of EconomicPolicy Journal reports Funding Problems in Spain. The spread between Spanish bond rates and the German bund has climbed to 200 basis points. The problem is spreading to Spain’s private sector as it is not clear what exposure private sector firms may have to Spanish government debt. FT reports: Francisco González, chairman of BBVA, Spain’s second-biggest lender, said: “For the majority of companies and Spanish financial firms, international capital markets are closed.” Carlos Ocana, treasury secretary, said the credit freeze affecting Spanish banks and corporations was “definitely a problem”.
EuroIntelligence reported in its daily morning news-briefing yesterday, Spain Cut Off From International Financial Markets. ”The situation in Spain has deteriorated, as the country’s private sector is now effectively cut off from international capital markets; the ECB has become Spain’s sole source of finance, as Spanish banks now account for 16.5% of ECB lending, almost twice the Spanish share in the ECB of 9%; it seems that the Spanish government’s austerity plan is undermining investors’ confidence in the recovery; Spanish 10-year bonds rise by a quarter point; Spanish government angrily rejects German media reports that a bailout is imminent; European Commission blames Germany for inciting rumours; Spanish government is now considering to publish the results of the stress tests in full to placate investors. The Spanish banking system is now wholly reliant on the ECB for funding.”
A growing Democratic Deficit is exemplified by Spain’s reliance on the ECB. The nation of Spain is no longer a sovereign nation state: it has lost its banking authority and thus Spain has lost its sovereignty. The ECB in Frankfurt is sovereign over Spain … Spain is simply a collection of people in a sovereign entity known as the eurozone. Those in Spain ar no longer citizens of a sovereign nation state; rather they are residents in a region of global governance.
The only monetary funding for Spain’s economy is the ECB. Apparently there is no commercial financing for Spanish businesses which use credit to meet payroll, to buy inventory and pay bills as they come due. This means businesses are going to fold, that is go under, due to impedance of monetary flow. The fact that monetary funding is not coming through the financial market place, but rather through the ECB, is stunning and revolutionary. The ECB, a bank outside of Spain, is the only and last lender of resort to businesses. This centralizes money and economic authority in Frankfurt and in Mr. Trichet. He is the Banker of Spain and monetary authority of its economy.
The El Pais report that the Spanish government will today launch its plans for labour reform, entering into force immediately, if proves to be true, would be three days early, as it planned to introduce the labour reforms by executive order on June 19th according to numerous other reports.
Spain cannot extend liquidity unilaterally, that is across the board, like the Fed proposed with its Commercial Paper Funding Facility (CPFF), and the Fed did with its TARP facility, and the fact that the majority of the Spanish companies and financial groups are shut out of the international capital markets, means Spain has a zombie commercial credit market.
And the fact that Spanish banks are borrowing record amounts from the ECB, €85.6 billion last month, as they struggle to gain funding from international capital markets, means that it has a zombie banking system.
If the EU, IMF and the US Treasury do as rumored and provide emergency liquidity plan for Spain, including a credit line up to €250 billion, it certainly would establish that European Economic Governance is being exercised in the eurozone, and that thus a European Economic Government exists with seigniorage power –and – if the EU, IMF and the US Treasury do as rumored, then a centralized, that is federal, European Government exists which is introducing global governance in Europe, where leaders announce policy, and working groups and stakeholders consisting of government officials and business administrators effect that policy, and the people follow. National sovereignty would be a principle of a bygone era, Spain would not be a sovereign nation state; the people of Spain would be residents of a region of global governance, one of ten called for by the club of Rome in 1974.
The Growing Democratic Deficit of the EU [View article]
I though I would come back and comment again regarding the Democratic Deficit of the EU that come from today's trading.
Currency traders called the markets higher today; and much higher in the case of BBVA which gapped open 2% higher and then closed 5% higher. This is investment surrealism and denial of reality, in other words a last gasp of investor exuberance, before the reality of debt deflation caused by the European sovereign debt problems settle-in, as Robert Wenzel of EconomicPolicy Journal reports Funding Problems in Spain. The spread between Spanish bond rates and the German bund has climbed to 200 basis points. The problem is spreading to Spain’s private sector as it is not clear what exposure private sector firms may have to Spanish government debt. FT reports: Francisco González, chairman of BBVA, Spain’s second-biggest lender, said: “For the majority of companies and Spanish financial firms, international capital markets are closed.” Carlos Ocana, treasury secretary, said the credit freeze affecting Spanish banks and corporations was “definitely a problem”.
EuroIntelligence reports in its daily morning news-briefing Spain Cut Off From International Financial Markets. ”The situation in Spain has deteriorated, as the country’s private sector is now effectively cut off from international capital markets; the ECB has become Spain’s sole source of finance, as Spanish banks now account for 16.5% of ECB lending, almost twice the Spanish share in the ECB of 9%; it seems that the Spanish government’s austerity plan is undermining investors’ confidence in the recovery; Spanish 10-year bonds rise by a quarter point; Spanish government angrily rejects German media reports that a bailout is imminent; European Commission blames Germany for inciting rumours; Spanish government is now considering to publish the results of the stress tests in full to placate investors. The Spanish banking system is now wholly reliant on the ECB for funding.”
A growing Democratic Deficit is exemplified by Spain’s reliance on the ECB. The nation of Spain is no longer a sovereign nation state: it has lost its banking authority and thus Spain has lost its sovereignty. The ECB in Frankfurt is sovereign over Spain … Spain is simply a collection of people in a sovereign entity known as the eurozone. Those in Spain ar no longer citizens of a sovereing nation state; rather they are residents in a region of global governance.
The only monetary funding for Spain’s economy is the ECB. Apparently there is no commercial financing for Spanish businesses which use credit to meet payroll, to buy inventory and pay bills as they come due. This means businesses are going to fold, that is go under due to impedance of monetary flow. The fact that monetary funding is not coming through the financial market place, but rather through the ECB, is stunning and revolutionary. The ECB, a bank outside of Spain, is the only and last lender of resort to businesses. This centralizes money and economic authority in Frankfurt and in Mr. Trichet. He is the Banker of Spain and monetary authority of its economy.
The Growing Democratic Deficit of the EU [View article]
Another comment on the Democratic Deficit of the EU:
I never new there was such an apt term that crystallizes an important concept.
Democratic Deficit was triggered by the European Sovereign Debt Crisis; and Democratic Deficit is increasing day by the day as the ECB increases its purchases of bonds …. and as European Banks place even more on deposit with the ECB as concerns intesify on counterparty risk.
The Club of Rome called for 10 regions of global governance in 1974; and with crisis comes European Economic Governance and loss of national sovereignty .. Democratic Deficit will continually increase until the word, will and way of a European Leader and a European Banker are the law of the Continent. There will be no citizens or citizenship: one will be a resident serving the responsibilities and needs of the Sovereign.
How Far Could Markets Rally? How to Play the Bounce [View article]
You write: As another leading safe haven asset, US Treasuries should also pull back. We would love to see prices fall for yields to get back as close as possible to 4% yields and establish new longs
It is highly likely that US Government Bonds have topped out. The chart of IEF, shows a dark cloud cover candlestick and a parabolic turn lower on June 10, 2010.
Given the unwinding of yen carry trade on April 24, 2010 in foreign stocks, the unwinding of yen carry trade in the US Dollar on June 10th,2010, and the fall of Aggregate Debt, AGG, on June 10, 2010, Debt Deflation is confirmed.
Debt deflation is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is that “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.”
Due to the risk of liquidity evaporation, wealth is best preserved by stopping of all trading, and investing in gold which is the safe haven investment in ongoing debt deflation. Personally I am invested in gold coins.
Austerity Comes to the U.K. [View article]
I hope the national health service will still manage. After Romania announced drastic cuts, the health system is now on the brink of going under.
If the UK actually cuts departmental costs by 25%, then the austerity measures will exceed thoose put through in Greece.
Is a Steep Yield Curve Leading Us Astray? [View article]
Stockcharts.com shows that the chart of the yield curve, $TYX:$TNX, has been steepening since April 26. Genuine investors are going to shy away from US Treasury auctions. Proxy investors, that being banks in London and in the US are going to buy US Treasuries for the Fed. This will monetize the debt causing IEF and TLT and ZROS to fall. Soon there will be a US Treasury auction failure and/or not enough money at the US Treasury to pay bills. As a result there will be a flight from fiat investments. A liquidity evaporation will occur as there will not be enough buyers for sellers. One may not be able to obtain from one's money market accounts and brokerage accounts.
On April 26, 2010, global debt deflation commenced, when the currency traders heavily sold the EUR/JPY causing stocks to fall globally. In a debt deflationary environment, a strengthening yield curve cannot produce growth, it only intensifies debt deflation.
On June 7, 2010, the currency traders went long the EUR/JPY providing two weeks of financial recovery. But on June 22, 2010, the traders reverse and the bear stock market recommenced. So it's going to be more debt deflation.
On June 22, 2010 the yield curve stockcharts.com/h-sc/u... strengthened again, so we are going to have more investment and economic deterioration.
'Euro-Copter' Lifts the S&P Higher; Bonds Aren't on Board [View article]
First, much like your article title suggests, it has been the currency traders going long the EUR/JPY driving the S&P up; but all kinds of risk abounds from sovereign debt, from falling high risk debt, from banks not trusting each other and depositing funds at the ECB nightly, from banks not lending or being simply unable to lend.
Second here is a lenghty but helpful article written by Martin Santa in Reuters article Slovaks Risk EU Safety Net Delay By Failing To Sign Off write that Slovakia rejected on Friday June 18, 2010 calls to sign Europe’s 750 billion euro stability programme, a necessary step for the financial safety net to go ahead, amid political wrangling.
Slovakia’s rejection could jeopardise European finance ministers’ plan for the facility to be operational by the end of June.
Slovakia was asked during a European Council meeting in Brussels on Thursday to sign the deal.
Outgoing Prime Minister Robert Fico, however, said his government lacked a mandate to do so.
He said it was ready to sign if given the nod by centre-right parties that are trying to form a government after winning elections last week.
“We are ready to sign if they say ‘Yes, we respect that mechanism’,” Fico told a news conference on Friday.
Pressure has been building on Slovakia from abroad to take at least the first step and sign off on the facility.
“We are confident that the prime minister and the new government know their European responsibility”, a German government spokesman said on Friday.
Slovakia is due to contribute around 4.5 billion euros to the 750 billion euro financial safety net, which was established by euro zone governments this month for member countries if they run into financial difficulty.
OPPOSITION TO GREEK AID
The issue has become the centre of a domestic political struggle between Fico’s leftist administration, which lost its majority in the election, and centre-right parties, who have opposed European aid to Greece.
The conservative Christian Democrat Union (SDKU), the Christian Democrat Movement (KDH), the liberal Freedom and Solidarity (SaS) and the mostly ethnic Hungarian party Most-Hid have been negotiating to form a cabinet but have not yet won an official mandate from President Ivan Gasparovic.
The SDKU’s election leader and the likely next prime minister, Iveta Radicova, said Fico had full authority to sign off on the EFSF.
“Slovakia’s prime minister and the government have a full (power) to decide (on the EFSF),” Radicova told reporters earlier on Friday.
She declined to ask Fico to sign the plan and refused to comment on how she would decide.
Finance Minister Jan Pociatek slammed the opposition stance.
“This is like playing with an atomic bomb. It is unpredictable what could happen if the mechanism will not be available on time,” he said.
Slovakia needs to sign the agreement on the EFSF but can later decide not to participate in the aid mechanism without preventing other countries from going ahead.
Once 90 percent of all the mechanism’s guarantees are confirmed by participating countries, the aid scheme can become operational.
Slovakia has a separate problem concerning the 110 billion euro EU/IMF bailout package for debt-laden Greece.
The country, which joined the euro zone in 2009 and is much poorer than Greece, is due to vote next month on its 800 million euro contribution to the package. But, before the election, the centre-right parties refused to say whether they would commit Slovakia’s share to the bailout should they take power.
Spain May Be the Next Domino to Fall [View article]
The fact that Spanish banks are turning to the European Central Bank as a lender of last resort documents that a sovereign central bank exists in the eurozone and that a centralized and unified government is in place in Europe. Spain has lost its banking and commercial credit sovereignty: credit comes from the ECB, and Mr. Trichet is Spain’s Banker and Credit Officer.
We will have more clarity after the Thursday Government Bond sale and Friday's conclusion of the Van Rompuy led EU Finance Ministers Task Group Session
Spain in the Crosshairs [View article]
I am of the opinion that if the EFSF issues US Dollar denominated eurobonds, and not Euro denominated eurobonds, then this would indicate a growth of global governance, in effect creating a “central bank of the world”, that is a “global central bank”. Dollar denominated bonds would be the precursor for what Timothy Geithner called: :unified regulation of banking globally”, as documented in June 8, 2008 James Politi and Gillian Tett Financial Times article Fed Chief In Push For Global Bank Framework. Also dollar denominated EFSF bonds could enable the US Federal Reserve, or its proxy banks, to liquify and stabilize European monetary, banking and lending markets to the detriment of US taxpayers and the sovereignty of the United States.
I would use the term “funding” for the EFSF, cautiously as I do not see any flow of funds, simply a committment to honor the EFSF’s debt. It is striking that a non government entity, an agency, is using seigniorage to create sovereign debt. The announcement of the EFSF by the EU Finance ministers at May 2010 summit, and now its creation by committment of nations to honor its debt, establishes the EFSF as the sovereign monetary authority for a Eurozone economic government. The EFSF becomes the Eurozone’s Treasury. The ECB is the Eurozone’s central bank, as nation states submit ever-increasing deposits there nightly. Clearly there is now a centralized monetary and banking authority in Europe, which establishes the eurozone as a region of global governance. National sovereignty was waived by Announcement of the May 2010 EU Finance and State Leaders Summit. One is no longer a citizen of sovereign nation state, rather one is a resident of a region of global governance.
The issuance of eurobonds by the EFSF not only creates a hierarchical and unified government in the Eurozone, but it also depreciates the AAA sovereign debt rating of Germany and others. And the issuance of eurobonds, creates more of what the world does not need, that being debt. Issuing more debt to assist in a debt crisis, monetizes the sovereign debt of all participating countries. This is inflationary and destructive to the value of the sovereign debt of the participants.
April 26, 2o10, marked the tipping point into global debt deflation, when short sellers successfully sold the markets short, and equities fell in value; until on June 7, 2010 when the currency traders ran the Euro, FXE, higher, and took the EUR/JPY, higher, causing European, FEZ, Spain, EWP, Austria, EWO, and Italy, EWI, to soar; as well as to make the Russell 2000, IWM, rise.
Today the bear market may be recommencing as the bear market ETFS, BOM, BZQ, EEV, EPV, FXP, JPX, SCO, SIJ, SJH, SMN, SRS, SSG are making some limited upward direction.
The European sovereign debt crisis has created an investment demand for gold, and a presumed flight to safety in US Treasuries, as IEF, TLT, ZROZ, TIP, are rising today; making the Direxion 300% inverse of 30 Year US Treasuries, TMV, fall towards its June 7, 2010 low of 45.49.
Spanish Echoes [View article]
I . Your Spanish Echoes report showing bond spreads are widening for Spain and other peripheries, suggests that the European sovereign debt crisis is worsening, and that the recent gains in the Euro, FXE, and European stocks, FEZ, cannot be sustained.
The widening peripheries bond spread presents a headwind for the currency traders to go long the Euro, FXE, and short the yen, FXY. The recent gains in the EUR/JPY carry trade are unlikely to be maintained. The unwinding of the EURJPY carry trade will cause disinvestment from Spain, EWP, Austria, EWO, and Italy, EWI shares.
II … Yahoo Finance charts show Spain, EWP, trading volatily, while Austria, EWO, and Italy, EWI, falling in early morning trading.
III .. MSN Finance shows the 200% bear of the credit sensitive US Russell 2000 shares, SJH, rising on adverse reaction to the widening european sovereign debt bond spreads.
IV. Yahoo Finance shows the Euro, FXE, and the Swiss Franc, FXF, which gapped open higher, are now falling and the US Dollar Bull ETF, UUP, rising in early morning trading.
V. Yahoo Finance shows the Euro Yen carry trade, FXE:FXY, falling, suggesting an unwinding of yen carry trade investment in European stocks is at hand.
VI. MSN Finance shows volatility, VXX, rising in early morning trading; this after having fallen since June 7, 2010 when the Euro rally began.
VII. The stockcharts.com chart of $TYX:$TNX, shows a rising yield curve since April 26, 2000 indicating risk aversion to investing in longer out US Debt. The rising yield curve presents a headwind for the credit sensitive Russell 2000 stocks, IWM.
Interest Rate Spreads Not Supportive of the Stock Rally [View article]
Your two charts reflect debt deflation that commenced with the onset of the European sovereign debt crisis.
You relate: "the rate spread between Moody's BAA and AAA corporate bonds has been widening since March".
And you relate: "the rate spread between Moody's AAA corporate bonds and ten-year US Treasuries has been widening" (as well since the same time, I remark).
These credit market headwinds gave short sellers the opportunity to short on April 26, with SJH, that is 200% inverse of the Russell 2000.
But short sellers' profits were wacked when the Euro, FXE, started to rise on June 7, 2010 from 118.80; it closed today, June 16, 2010 at 122.63.
The investor should stand ready to go short with SJH as the credit headwinds may resume.
The financially sensitive Russell 2000, $RUT, closed at 666. Its ETF, IWM, closed at 66.68; this goes back on the weekly charts to January 3, 2006.
The Russell 2000 are small cap companies that depend upon fluid access to low cost credit.
Credit headwinds were only deflected by a rising Euro, FXE.
The lever on stocks of late, has been the euro-yen carry trade. The stocks have been buoyant of the euro-yen carry trade, meaning they have been getting a lift or bounce up from the EUR/JPY.
Yahoo Finance shows a close of the euro yen carry trade EURJPY at 112.46.
So a move in stocks will come mostly, from the carry traders going long the EURJPY from 112.46. Likewise, a move down will come from those financed by the 0.25% interest Bank of Japan loans, going short the Euro, FXE, relative to the Yen, FXY.
Institutional short sellers should consider entering a broad spectrum of the Proshares 200% inverse ETFs such as: BOM, BZQ, EEV, EPV, FXP, JPX, SCO ,SIJ, SJH, SMN, SRS, SSG
Also institutional short sells should consider entering the Direxion 300% inverse ETF TMV, which 300% inverse of the 30 Year US Govenment Bonds.
The credit headwinds that your charts show, started to blow adversely with as I mentioned, the onset of the European sovereign debt crisis which reflects debt deflation.
Debt deflation is consequence of credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is that “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.”
Gold, GLD, is the best means of personal wealth preservation against debt deflation. It is now outperforming silver, SLV, which like the HUI precious metal mining stocks, GDX, have disconnected from the price of gold and fallen lower; this is the natural outcome of the commencing of the process of debt deflation. MSN charting shows that the gold mining stocks and silver disconnected from the price of gold on May, 12, 2010.
I personally am invested in gold coins.
Bearish Sentiment Approaching July 2009 Highs [View article]
“The issue here is political risk. If they keep bailing out countries, it will mean printing money: that is not going to go down well in Germany,” he said.
Theodora Zemek from AXA Investment Managers said any rescue will have knock-on effects on the credit ratings of donor states. “Germany and France risk going from AAA to AA,” she said.
The original hope behind the EU’s €750bn “shock and awe” headline was that the announcement of such sums would end all doubts about the political solidarity behind the euro project, but nationalist body-language from EU capitals and daily spats between France and Germany have sapped confidence.
What haunts markets is fear that Spain may be the last line of defence. There can be no easy rescues after that because the money will run out. If investors ever start to question Italy’s public debt – the world’s third largest – they may face a sovereign version of the Credit Anstalt crisis of 1931. So far, Italy has remained as strong as a rock.
II … And at the close of trading today Wednesday, June 15, 2010, we wait for a decision as to what the currency traders will do: either call the markets higher or lower with the EUR/JPY. The market decision will be made Thursday, Friday, Monday and Tuesday.
III .. Today, the financially sensitive Russell 2000, $RUT, closed at 666; its ETF, IWM, closed at 66.68; this goes back on the weekly charts to January 3, 2006.
Yahoo Finance shows a close of the euro yen carry trade EURJPY at 112.46.
The lever on stocks of late, has been the euro-yen carry trade. The S&P has been buoyant of the euro-yen carry trade, meaning it has been getting a lift or bounce up from the EUR/JPY. So a move in the S&P, SPY, up from today’s 111.96, will come mostly, from the carry traders going long the EURJPY from 112.46. Likewise, a move down in the S&P will come from those financed by the 0.25% interest Bank of Japan loans, going short the Euro, FXE, relative to the Yen, FXY.
Institutional short sellers should consider entering the Proshares 200% inverse ETFs such as: BOM, BZQ, EEV, EPV, FXP, JPX, SCO ,SIJ, SJH, SMN, SRS, SSG
Also institutional short sells should consider entering the Direxion 300% inverse ETF TMV, which 300% inverse of the 30 Year US Govenment Bonds.
Gold, GLD, is the best means of personal wealth preservation. It is now outperforming silver, SLV, which like the HUI precious metal mining stocks, GDX, have disconnected from the price of gold and fallen lower; this is the natural outcome of the commencing of the process of debt deflation. MSN charting shows that the gold mining stocks and silver disconnected from the price of gold on May, 12, 2010.
I personally am invested in gold coins.
Dollar Index Pulls Back [View article]
On June 14, 2010, the EUR/JPY closed up at 111.96 according to Yahoo Finance and 111.96 according to Forex-ex and it went up again June 15, 2010 as currency traders had already built in awareness of Greece's issues and wanted to take profits and go long to start a recovery and a start new trading wave for their advantage. The rise in the Euro, FXE, sent the US Dollar, $USD, down.
The US Treasuries, IEF, TLT, and ZROZ, fell lower as debt deflation manifested in the US Government bonds; the chart of the US 10 year Government Note, IEF, shows a massive dark cloud cover candlestick.
The US Dollar Bull ETF, UUP, and the US Dollar, $USD have turned parabolically lower. The days of finding safe haven investment in the US Treasuries are over.
The age of debt deflation features competitive currency, stock and debt deflation, with investors finding safe haven in gold.
Personally I m invested in gold coins.
Bespoke's Commodity Snapshot (6/15/10) [View article]
Comparing Silver, SLV, to Gold, GLD, one can see just how much of a yen carry trade darling this use to be. It was very manic, as it came under day trading by those with yen carry trading funding. But now, as risk aversion has increased, it is NOT an investment metal like gold; it is a base metal and trades like basic material stocks. Over the years, I kept hearing buy silver because it out performs gold. Well the Silver and Gold chart lay to rest the idea that silver is a buy and hold investment. I’m glad I invested in gold coins.
Copper, JJC, is a base metal commodity; and it turned down on news of China bank tightening.
Finally gold, GLD, is special because not only is it a commodity but commodity; and will perform well as a safe haven investment in the age of debt deflation; yes gold will be going onward and upward
Does the Bounce in the Euro Signal All Is Well? [View article]
The fact is they cannot dig themselves out. One of the most famous quotations of Austrian economist Ludwig von Mises is that “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.” John Hara provides the details of debt deflation in article Into The Abyss: The Cycle Of Debt Deflation posted in Gold Speculator as well as posted in 24HGold.
The bottom line, with respect to Greece, is that the Annoncement of EU Finance Ministers Euro bilateral loans, which is really seigniorage aid, is only an unwise extend and pretend operation which bought some time before more serious problems arise.
Moody's downgraded Greece's debt to junk. In one respect the EU Finance Ministers should have let Greece default, but then the Euro would have collapsed overnight to parity with the US Dollar. So a slow death is better than a heart attack and stroke. At least the patient gets some life, before it finally has the massive attack.
Latest EU Debt Crisis: 3 Reports Say Spain Is Seeking Aid [View article]
1) First, the news from OpenEurope.org reports via email newsletter:
The Spanish newspaper El Economista reports that experts from the EU, IMF and the US Treasury are drawing up an emergency liquidity plan for Spain, including a credit line up to €250 billion. “The solution outlined for Spain will benefit from the resources of the bail-out fund of the Union and a contribution from the IMF, consisting of a credit line that the fund provides to countries with solvent economies but at risk of contagion”, the article reads. However, Reuters quotes Amadeu Altafaj Tardio – a spokesman for EU Commissioner Olli Rehn – describing the report as “very bizarre”, and adding: “I can firmly deny it”.
Meanwhile, El Pais reports that the Spanish government will today launch its plans for labour reform, entering into force immediately, although none of the Parliamentary groups has guaranteed its support so far. As a result, the text might fall short of reaching the required majority when the Spanish Parliament votes on it next Tuesday.
AFP reports that the Commission yesterday told Spain that it must introduce extra austerity measures of around 1.75 percent of GDP in its 2011 budget to meet its deficit reduction targets.
The FT reports that Spanish banks are borrowing record amounts from the ECB, €85.6 billion last month, as they struggle to gain funding from international capital markets. Francisco González, chairman of BBVA – the second largest Spanish bank – is quoted in the Telegraph admitting that “the majority of the Spanish companies and financial groups are shut out of the international capital markets”.
A leader in the FT also argues: “While the government can cut its own borrowing, it can do less to resolve the private sector’s woes. Within monetary union, Spain has surrendered its ability to extend liquidity unilaterally. The private sector borrowed excessively during the boom – mainly to fund house building rather than productive investment. Consequently, there are a lot of bad debts, in both the corporate and banking sector. These undermine the ability of healthy companies to attract funding”.
2) Second my comments, that Spain has zombie banking and lending markets; it is a zombie state in a region of global governance.
Well this may news may NOT be enough to turn down the EUR/JPY which has risen from 109 on June 7th, 2010 to today’s pre stock market open of 112.08; but it might be enough to turn the european stocks, FEZ and the European financial institutions, EUFN, and STD, down today, which rose 10%, 10% and 20% in four days of trading, that is since June 9, 2010.
Currency traders called the markets higher yesterday June 15, 2010; and much higher in the case of STD which gapped open 5% higher and then closed 7% higher. This is investment surrealism and denial of reality, in other words a last gasp of investor exuberance, before the reality of debt deflation caused by the European sovereign debt problems settle-in, as Robert Wenzel of EconomicPolicy Journal reports Funding Problems in Spain. The spread between Spanish bond rates and the German bund has climbed to 200 basis points. The problem is spreading to Spain’s private sector as it is not clear what exposure private sector firms may have to Spanish government debt. FT reports: Francisco González, chairman of BBVA, Spain’s second-biggest lender, said: “For the majority of companies and Spanish financial firms, international capital markets are closed.” Carlos Ocana, treasury secretary, said the credit freeze affecting Spanish banks and corporations was “definitely a problem”.
EuroIntelligence reported in its daily morning news-briefing yesterday, Spain Cut Off From International Financial Markets. ”The situation in Spain has deteriorated, as the country’s private sector is now effectively cut off from international capital markets; the ECB has become Spain’s sole source of finance, as Spanish banks now account for 16.5% of ECB lending, almost twice the Spanish share in the ECB of 9%; it seems that the Spanish government’s austerity plan is undermining investors’ confidence in the recovery; Spanish 10-year bonds rise by a quarter point; Spanish government angrily rejects German media reports that a bailout is imminent; European Commission blames Germany for inciting rumours; Spanish government is now considering to publish the results of the stress tests in full to placate investors. The Spanish banking system is now wholly reliant on the ECB for funding.”
A growing Democratic Deficit is exemplified by Spain’s reliance on the ECB. The nation of Spain is no longer a sovereign nation state: it has lost its banking authority and thus Spain has lost its sovereignty. The ECB in Frankfurt is sovereign over Spain … Spain is simply a collection of people in a sovereign entity known as the eurozone. Those in Spain ar no longer citizens of a sovereign nation state; rather they are residents in a region of global governance.
The only monetary funding for Spain’s economy is the ECB. Apparently there is no commercial financing for Spanish businesses which use credit to meet payroll, to buy inventory and pay bills as they come due. This means businesses are going to fold, that is go under, due to impedance of monetary flow. The fact that monetary funding is not coming through the financial market place, but rather through the ECB, is stunning and revolutionary. The ECB, a bank outside of Spain, is the only and last lender of resort to businesses. This centralizes money and economic authority in Frankfurt and in Mr. Trichet. He is the Banker of Spain and monetary authority of its economy.
The El Pais report that the Spanish government will today launch its plans for labour reform, entering into force immediately, if proves to be true, would be three days early, as it planned to introduce the labour reforms by executive order on June 19th according to numerous other reports.
Spain cannot extend liquidity unilaterally, that is across the board, like the Fed proposed with its Commercial Paper Funding Facility (CPFF), and the Fed did with its TARP facility, and the fact that the majority of the Spanish companies and financial groups are shut out of the international capital markets, means Spain has a zombie commercial credit market.
And the fact that Spanish banks are borrowing record amounts from the ECB, €85.6 billion last month, as they struggle to gain funding from international capital markets, means that it has a zombie banking system.
If the EU, IMF and the US Treasury do as rumored and provide emergency liquidity plan for Spain, including a credit line up to €250 billion, it certainly would establish that European Economic Governance is being exercised in the eurozone, and that thus a European Economic Government exists with seigniorage power –and – if the EU, IMF and the US Treasury do as rumored, then a centralized, that is federal, European Government exists which is introducing global governance in Europe, where leaders announce policy, and working groups and stakeholders consisting of government officials and business administrators effect that policy, and the people follow. National sovereignty would be a principle of a bygone era, Spain would not be a sovereign nation state; the people of Spain would be residents of a region of global governance, one of ten called for by the club of Rome in 1974.
The Growing Democratic Deficit of the EU [View article]
Currency traders called the markets higher today; and much higher in the case of BBVA which gapped open 2% higher and then closed 5% higher. This is investment surrealism and denial of reality, in other words a last gasp of investor exuberance, before the reality of debt deflation caused by the European sovereign debt problems settle-in, as Robert Wenzel of EconomicPolicy Journal reports Funding Problems in Spain. The spread between Spanish bond rates and the German bund has climbed to 200 basis points. The problem is spreading to Spain’s private sector as it is not clear what exposure private sector firms may have to Spanish government debt. FT reports: Francisco González, chairman of BBVA, Spain’s second-biggest lender, said: “For the majority of companies and Spanish financial firms, international capital markets are closed.” Carlos Ocana, treasury secretary, said the credit freeze affecting Spanish banks and corporations was “definitely a problem”.
EuroIntelligence reports in its daily morning news-briefing Spain Cut Off From International Financial Markets. ”The situation in Spain has deteriorated, as the country’s private sector is now effectively cut off from international capital markets; the ECB has become Spain’s sole source of finance, as Spanish banks now account for 16.5% of ECB lending, almost twice the Spanish share in the ECB of 9%; it seems that the Spanish government’s austerity plan is undermining investors’ confidence in the recovery; Spanish 10-year bonds rise by a quarter point; Spanish government angrily rejects German media reports that a bailout is imminent; European Commission blames Germany for inciting rumours; Spanish government is now considering to publish the results of the stress tests in full to placate investors. The Spanish banking system is now wholly reliant on the ECB for funding.”
A growing Democratic Deficit is exemplified by Spain’s reliance on the ECB. The nation of Spain is no longer a sovereign nation state: it has lost its banking authority and thus Spain has lost its sovereignty. The ECB in Frankfurt is sovereign over Spain … Spain is simply a collection of people in a sovereign entity known as the eurozone. Those in Spain ar no longer citizens of a sovereing nation state; rather they are residents in a region of global governance.
The only monetary funding for Spain’s economy is the ECB. Apparently there is no commercial financing for Spanish businesses which use credit to meet payroll, to buy inventory and pay bills as they come due. This means businesses are going to fold, that is go under due to impedance of monetary flow. The fact that monetary funding is not coming through the financial market place, but rather through the ECB, is stunning and revolutionary. The ECB, a bank outside of Spain, is the only and last lender of resort to businesses. This centralizes money and economic authority in Frankfurt and in Mr. Trichet. He is the Banker of Spain and monetary authority of its economy.
The Growing Democratic Deficit of the EU [View article]
I never new there was such an apt term that crystallizes an important concept.
Democratic Deficit was triggered by the European Sovereign Debt Crisis; and Democratic Deficit is increasing day by the day as the ECB increases its purchases of bonds …. and as European Banks place even more on deposit with the ECB as concerns intesify on counterparty risk.
The Club of Rome called for 10 regions of global governance in 1974; and with crisis comes European Economic Governance and loss of national sovereignty .. Democratic Deficit will continually increase until the word, will and way of a European Leader and a European Banker are the law of the Continent. There will be no citizens or citizenship: one will be a resident serving the responsibilities and needs of the Sovereign.
How Far Could Markets Rally? How to Play the Bounce [View article]
It is highly likely that US Government Bonds have topped out. The chart of IEF, shows a dark cloud cover candlestick and a parabolic turn lower on June 10, 2010.
Given the unwinding of yen carry trade on April 24, 2010 in foreign stocks, the unwinding of yen carry trade in the US Dollar on June 10th,2010, and the fall of Aggregate Debt, AGG, on June 10, 2010, Debt Deflation is confirmed.
Debt deflation is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is that “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.”
Due to the risk of liquidity evaporation, wealth is best preserved by stopping of all trading, and investing in gold which is the safe haven investment in ongoing debt deflation. Personally I am invested in gold coins.