Financial Market Report for November 15, 2010
I … Introduction
The bond vigilantes continued to call the US Federal Reserve’s Quantitative Easing 2, exactly what it is, that being monetization of debt. The currency traders continued the global currency war that commenced November 5, 2010, when they sold the world’s major currencies and the emerging market currencies, and thus rallied the US Dollar, $USD.
II ... Stockcharts shows US interest rates melted up today or better said exploded up today.
Yahoo Finance Briefing reported: Maturities ranging from 5 years on up saw their yields climb by at least 10 bps, with many maturities seeing their highest yields in several months. Over the past two sessions, selling has sent the 10-yr yield up 36 bps to 2.924%, its highest level since early August. Even the 3-yr has seen its yield climb close to 20 bps over that time to levels not seen since early September. The 2-10-yr spread has blown out to 241, seeing a 20 bp rise over the past two sessions, and trading at levels not seen since early August. While the belly of the curve has swung steeper, the 10-30-yr spread is flatter to 146.2, and will close at its flattest level since November 3rd
I report the flattening of the 30-0 Yield Curve is seen in the chart $TYX:$TNX having reached a zenith of steeping on Thursday November 4, 2010. The 30-10 yield curve has definitely been flattening since November 5, 2010.
The interest rate on the US 30 Year government bond, $TYX, has been going up strongly since November 4, 2010; today it rose 2.48%.
One of the objectives of QE 2 was to stabilize short term interest rates, that is the rate that supposedly the US Fed controls. Today, the interest rate on the 2 Year US Government Note, $UST2Y, blasted like a rocket 3.9% higher. The bond vigilantes have seized control of all interest rates.
Doug Noland in November 12, 2010 article The Official Start of QE 2 related: “Global yields were on the rise. German bund yields gained 9 bps to 2.51% and Japan’s JGB yields rose 7 bps to 0.99%. Notably, UK 10-year yields jumped 24 bps (3.21%), Spain 17 bps (4.53%), and Italy 18 bps (4.15%). Our 30-year Treasury yields rose 17 bps to 4.29%, the high since mid-May. Benchmark U.S. municipal yields jumped 24 bps to 3.70% (from Bloomberg). Mr. Noland asks: Has quantitative easing – on this, the initial trading day of QE2 – turned counterproductive?”
III ... Bonds fell significantly today.
PICB, -0.4% International Corporate Bonds
BLV, -1.5% Longer maturity Corporate Bonds
LQD, -1.1% Corporate Debt.
BND, -0.5% Total Bonds
LAG, -0.8% Lehman Aggregate Debt
AGG, -0.6% Aggregate Debt
BWX, -1.1% World Government Debt
ZROZ, -3.3% The Zeroes
TLT, -2.1% The 10 to 20 Year US Government Bonds.
EDV, -3.0% The 30 Year US Government Bond
IEI, -0.7% The 1 to 3 Year US Government Notes
SHY, -0.06% The 2 Year US Government Note
BAB, -2.1%; the Build America Bonds were terrifically decimated today.
FAGIX, -0.3% This mutual fund of distressed investments serves as a good proxy for the securities taken in under the Federal Reserve TARP program, that is QE 1, where the formerly money good US Treasuries were released to the banks, KBE, which now reside deteriorating at the Fed in excess reserves.
MUB, -1.5%. As John Galt wrote, we are are witnessing Municide. The municipal bonds are undergoing intense debt deflation.
CMF, -3.2%. With a waterfall loss of value, in municipal bonds and state bonds, why would an investor maintain his investment in these financial instruments The terrific destruction of municipal and state debt is a national security threat and portends significant layoffs of municipal and state employees.
JNK, -0.2. The fall in junk bonds suggests that investment liquidity is now off and that investing long in carry trades is history.
EMB, -0.9% The fall in emerging market bonds illustrates that even emerging market debt will be falling lower.
MBB, -0.2% One of the objectives of QE2 was to protect the value of mortgage backed investments held by banks.
GSUAX, -0.3% Goldman Sachs US Mortgage and Intermediate Bond fund.
LTPZ, -2.2%; STPZ, -0.3% and TIP, -1.2%. As investors currently do not see inflation, these bonds sod off.
The end of credit is underway
IV ... The currency traders HEAVILY sold most of the world’s currencies today.
The only exceptions were the Canadian Dollar, FXC, and the Mexico Peso, FXM. The currency traders intensified the competitive currency devaluation, that is the competitive currency devaluation, that they started November 5, 2010, when the interest rate on the US 30 Year Government bond, $TYX, sustained above 4.0%.
FXY, - 0.93%
FXE, - 0.89%
FXF, - 0.66%
FXB, - 0.55%
ICN, - 0.45%
BNZ, - 0.40%
BZF, - 0.39%
SZR, - 0.35%
FXA, - 0.29%
FXS, - 0.28%
XRU, - 0.25%
FXC, - 0.01%
The Yen, FXY, closed at 118.18 today.
The Euro, FXE, closed at 135.18 today.
Cumulative losses since 11-05-2010 are shown below. The major currencies have fallen more than the emerging market currencies, CEW, which have fallen 2.0%.
FXS, - 4.1%
FXE, - 3.3%
BNZ, - 3.3%
FXA, - 3.1%
BZF, - 2.7%
ICN, - 2.6%
SZR, - 2.6%
FXF, - 2.5%
FXY, - 2.2%
CEW, - 2.0%
XRU, - 1.4%
FXB, - 0.9%
FXC, - 0.8%
FXM, - 0.6%
Doug Noland in November 12, 2010 article The Official Start of QE 2 provides the facts that document that the currency traders have commenced a global currency war against the world governments as he wrote: “The dollar index rallied 2.0% (up 0.3% y-t-d) to 78.11. For the week on the downside, the Swedish krona, FXS, declined 3.7%, the Norwegian krone 3.3%, the Australian dollar, FXA, 3.1%, the New Zealand dollar, BNZ, 2.8%, the South African rand, SZR, 2.7%, the Brazilian real, BZF, 2.5%, the Euro, FXE, 2.4%, the Danish krone 2.4%, the Swiss franc, FXF, 2.0%, the South Korean won 1.8%, the Japanese yen, FXY, 1.5%, the Canadian dollar, FXC, 1.2%, the Mexican peso, FXM, 1.1%, the Singapore dollar 0.9%, the British pound, FXB, 0.4%, and the Taiwanese dollar 0.3%.”
One can follow commonly traded currency ETFs in this MSN Chart of FXA, FXE, FXM, FXC, ICN ,FXB, FXS, SZR, FXF, BZF, XRU, FXY, BNZ or this Finviz Screener
Needless to say, the USD/JPY jumped higher; and its inverse ETF, JYN, fell lower. The USDJPY was trading at 83.1 as of the writing of this article, up from Tuesday November 9, 2010 of 80.5.
V … Stocks fell some today.
The stocks that fell today, are for the most part, the ones that have fallen the most since November 5, 2010:
International Consumer Discretionary, IPD, 1.5%
Solar, TAN, -0.7%
Real Estate, IYR, -1.1%
Home Builders, ITB, -2.3%
Copper miners, COPX, -1.2
Metal Manufacturing, XME, -0.6%
Junior gold mining stocks, GDXJ, -1.7%
Silver miners, SIL, -2.0%
Steel manufacturers, SLX, -0.3%
Semiconductors, SMH, -0.65
Nuclear Energy, NLR, -0.5%
Wind Energy, FAN, -0.9%
Retail, RTH, -0.7%
Airlines, FAA, -0.7%
Internet, HHH, 1.9%
Dow Jones Internet, FDN, -1.2%
Nasdaq Internet, PNQI, -1.3%
Countries falling today included:
South Korea Small Caps, SKOR, 1.6%
India, INP, -1.1%
China, FXI, -1.3%
Italy, EWI, -0.5%
Poland, EPOL, -0.55
Malaysia, EWM, -0.4%
Hong Kong, EWH, -0.4%
Singapore, EWS, -0.4%
Emerging Europe, ESR, -0.5%
Europe, VGK, -0.25
World Stocks, ACWI, -0.1%
Preferred shares, PGX, in falling only 0.2%, manifested massively bearish engulfing
VI … Although there has not been a significant amount of unwinding of dollar carry trades and yen carry trades, a debt deflationary bear stock market is underway, as is documented by the ongoing fall in the ratio of the small cap pure value shares, RZV, relative to the small cap pure growth shares, RZG, RZV:RZG below the 0.805 value of November 4, 2010.
VII ... Precious and base metals fell some today.
Silver, SLV, -2.3% … Silver has now fallen to strong support.
Gold, GLD, -0.9% … Gold has fallen to strong support at 133; even stronger support is at 130
Nickle, JJN, -1.0%
Tin, JJT, -1.4%
Lead, LD, 2.1%
Gold, $GOLD, will be going higher soon: when ever a country monetizes its sovereign debt, the investment demand for gold skyrockets. While gold could easily fall lower to $1350 or $1,325; it will be going higher.
VIII … The bond report and currency report above documents that the bond traders and currency traders are now the world’s sovereign governing powers.
It is evident from news reports that Ireland has lost its sovereign debt seigniorage and the ECB is Ireland’s Seignior.
EuroIntelligence reports Simon Johnson and Peter Boone argue that Merkel’s crisis resolution regime was an open invitation to speculators; Wolfgang Munchau says the crisis resolution regime will either lead to a fiscal union, or a break-up; Nicolas Sarkozy reappoints Fillon as PM; in Greece, meanwhile, Papandreou talks about a rescheduling of the EU/IMF loan.
The EU countries, other than Greece, in failing to cut deficit spending, Germany's Angela Merkel and France's Nicolas Sarkozy in raising the spectre of sovereign debt default in periphery Europe, Ireland in suggesting that junior bond holders in the Anglo Irish Bank take an 80% haircut, and Ben Bernanke by planning for and executing QE 2, have collectively stimulated intense global currency volatility. Systemic risk has gone off the scale, and Götterdämmerung, as analyst Ambrose Evans Pritchard suggests, could happen at any time.
Disclosure: I am invested in gold bullion