I … News agencies report that the International Monetary Fund, European, and United Kingdom leaders, are likely to provide seigniorage aid to Ireland to prevent a European and world-wide financial meltdown; terms offered are said to be less to be less austere than those extended to Greece. Ireland says it is not sacrificing any national sovereignty by participating in the aid program; but after the deal is done, we will learn otherwise. Currency traders bought the natural resource currencies, causing yen based carry trades to explode higher globally. Stocks and commodities rose strongly today.
Ireland, EIRL, and the European Financial Institutions, EUFN, led the world stocks, ACWI, higher.
Basic Materials such as China Materials, CHIM, Copper Miners, COPX, Coal, KOL, Metal Manufacturing, XME, International Basic Material, DBN, Junior Gold Mining Stocks, GDXJ, Steel, SLX, rocketed higher.
Deflationary stocks such as Semiconductors, XSD, Nuclear Energy, NLR, Barclays Leveraged S&P, BXUB, Internet, HHH, Nasdaq Internet, PNQI, Down Jones Internet, FDN, Airlines, FAA, Nanotechnology, PXN, and International Utilities, IPU, and International Dividend Payers, DOO, Tax Managed Buy Write Opportunities, ETW.rose.
Consumer discretionary, Las Vegas Sands, LVS, Gaming, BJK, InterContinental Hotels Group, IHG, Clear Channel Outdoor Advertising, CCO, Liberty Media, LCAPA, International Discretionary, IPD, rose, Small Cap Consumer Discretionary, XLYS.
Business Services, Standard Packaging, STAN, True Blue Inc, TBI, rose.
Credit Services, Mastercard, MA, American Express, AXP, rose.
Services, International Expeditors, EXPD, Shutterfly, SFLY, rose.
Financial Firms, Insurance, KIE, rose.
Health Care Companies, such as Biotechnology, PBE, rose.
Real Estate companies, such as the Office REIT firm, CapLease, LSE rose.
Emerging Markets, EEM, rising strongly included: Thailand, THD, Turkey, TUR, Chile, ECH, rose.
Retail, RTH, rose
The US Shares, VTI, New York Composite, NYC, Russell 2000, IWM, and the S&P, SPY rose.
Major countries rising strongly included: Europe, VGK, China, FXI, Canada Small Stock, CNDA, South Korea, EWY, South Korea Small Caps, SKOR, Thailand, THD, India, INP, Turkey, TUR, Australia Small Caps, KROO, Chinese Small Caps, HAO, Wisdom Tree Hedged Japan, DXJ, Russia, RSX, Brazil Small Caps, BRF, Sweden, EWD, South Africa, EZA, Taiwan, EWT, New Zealand, ENZL, United Kingdom, EWU, Mexico, EWW, rose.
The currency sensitive small cap pure value shares, RZV, popped higher.
Commodities, DBC, rose. Cotton, BAL, Silver, SLV, Food Commodities, FUD and Base Metals, DBB, led the commodities rise.
International Corporate Bonds, PICB, World Government Bonds, BWX, Emerging Market Bonds, EMB, rose; while Bonds, BND, traded unchanged. Mike Mish Shedlock reports Bear Flattner In Treasuries Continues; Mortgage Rates Climb
I personally am invested in gold bullion, $GOLD, Gold, GLD and Silver,SLV, rose on the higher commodity currencies.
Today’s rise presented an excellent short selling opportunity as a good investment maxim to follow is: In a bull market buy on price dips and in a bear market sell into strength.
Short selling opportunities manifested in
Direxion 200% Natural Gas — FCGL
ProShares Ultra Brazil — UBR,
ProShares Ultra Consumer Services — UCC
ProShares Ultra Emerging Markets — EET
ProShares Ultra Europe — UPV
ProShares Ultra India — INDL
ProShares Ultra Japan — EZJ (It was the short sell of the day)
ProShares Ultra Russell 2000 — URTY
ProShares Ultra Semiconductors — USD
ProShares Ultra Utilities — UPW
II … The International Monetary Fund, European, and United Kingdom, leaders rushed to Ireland’s aid as a bank run began in Ireland.
A … EuroIntelligence in November 18, 2010 article A bank Run In Ireland states: “This is what happens when you in constant denial of a problem. It gets on top of you. The FT reports this morning that corporate customers have been pulling out their deposits from Irish banks, amid signs of fading confidence in the banking system. Irish Life & Permanent said corporate customers had withdrawn €600m, more than 11% of total deposits, during August and September.”
Continuing, EuroIntelligence in review of November 17, 2010 FT article Europe Heads Back Into The Storm, states: “The immediate issue at stake now is the solvency of the Irish banks. If Irish banks collapse, this would trigger bank failures across the European continent. This, not sovereign default, is the real threat in the short term. Ireland has to choose between the solvency of its banks, and its own solvency, a choice that may soon be confronted by other European countries.”
EuroIntelligence also continues: “Reuters Breakingviews says Irish banks need €100bn. This is a very solid analysis on why Ireland is in the mess it is, and a cautionary tale for anybody who thinks that financial crisis can be quickly overcome. Reuters Breakingsviews have crunch the numbers, and found that the rescue costs of Irish banking sector would be about €100bn , the amount need to fund the three largest banks, Allied Irish Bank, Anglo-Irish Bank, and Bank of Ireland. This figure is not the market. They are currently kept afloat by borrowing €130bn from the ECB, but the ECB is keen to reduce these unconventional liquidity operations, as the problems of those banks is clearly one of solvency, not one of liquidity. Over the next three years, the three banks have to refund themselves to the tune of €110bn.”
Euro Intelligence adds: “Portugal is showing the first signs of rising difficulty in accessing debt markets, a situation that if it were to drag on until the beginning of next year will jeopardize the solvency of the state, writes Jornal de Negocios. The auction for 12 months treasury bills achieved to place all debt they wanted to raise but at a high additional cost, for an interest rate of 4.8%.”
B … OpenEurope relates in its November 18, 2010 Press Summary Newsletter that in his November 17, 2010 BBC blog article Irish Stew, Nick Robinson writes: “Could a British, Eurosceptic, Conservative prime minister have to pledge billions to save the euro from collapse? Will David Cameron agree to increased EU powers to avert a future crisis of the sort brewing around Ireland? The answer to both questions appears to be yes which may land the Tory part of this coalition in a very hot Irish stew.”
C … Graeme Wearden and Julia Kollewe in November 17, 2010 Guardian article Ireland’s Debt Crisis Today As It Happened report that Chancellor George Osborne said the UK stands ready to play its part in any rescue: “Ireland is our closest neighbour and it’s in Britain’s national interest that the Irish economy is successful and we have a stable banking system,” he said in Brussels.
Here are the facts he is likely to be basing his thoughts on. Ireland is the UK’s fifth largest export market, worth £29bn a year – or 5% of the UK’s exports. We trade more to Ireland that we do to China, India, Brazil and Russia combined. Another bit of context is that those exports amount to 2% of GDP. UK banks also have significant exposure to Ireland. Analysts at stockbrokers Matrix calculated that two banks bailed out by the UK taxpayer – Royal Bank of Scotland and Lloyds Banking Group – had exposures of £57.6bn and £27bn respectively to Irish companies.”
D … Daily Mail in November 18 article This Is One Eurozone Country We Must Help relates: “The harsh reality is Britain’s banks lent £140billion to Ireland – with the almost wholly taxpayer-owned RBS leading the pack – and it accounts for seven per cent of UK exports. The harsh reality is Britain’s banks lent £140billion to Ireland – with the almost wholly taxpayer-owned RBS leading the pack – and it accounts for seven per cent of UK exports.”
E … Ambrose Evans Pritchard in November 18 2010 article Ireland Set To Tap €80bn Loan As It Opens Door To IMF Mission reports: ”Analysts say the state may have to inject up to €15bn into Bank of Ireland and Allied Irish, AIB, after the pair lost almost €20bn of deposits in the early autumn. Central bank governor Patrick Honohan gave a hint of ECB intentions by saying lenders should be “over-capitalised”.
The ECB wants to extricate itself from the role of propping up the Irish banking system – and therefore the state – with loans equal to 80 pc of Irish GDP. Any bail-out will be on softer terms than the “Memorandum” imposed on Greece. The country has already slashed spending and cut public wages by 13 pc.
Brussels is clearly pushing Ireland into a rescue before it needs one in order to stem contagion to Portugal and Spain, so Dublin can hope to extract guarantees on Irish sovereignty and its 12.5pc corporation tax rate, which that has been crucial in luring Google, Microsoft, Pfizer, and others to Ireland. LCH Clearnet doubled its margin requirement to 30pc for Irish bonds despite the likely rescue. Julian Callow from Barclays Capital said Ireland faces a “truly daunting task” trying to tackle both its financial and fiscal crises at the same time.
“The country still has the highest budget deficit in the eurozone despite austerity cuts. The deficit is 12 pc of GDP this year after stripping out bank rescue costs, the same as last year. This is what concerns investors,” he said.”
F … Robert Winnett and Bruno Waterfield in November 17, 2010 Telegraph article report: British Banks Have £140 Billion Exposure To Ireland’s Economic Crisis report: “George Osborne has pledged to help Ireland after new figures showed British banks have a £140 billion exposure to the beleaguered country.”
The new figures, from the Bank for International Settlements, BIS, disclose that Britain faces the biggest potential losses from a meltdown in the Irish economy. This country’s banks have lent more than those from any other country to the Irish government, consumers and businesses. RBS, the largely nationalised bank, is thought to have the biggest exposure with more than £50 billion of outstanding loans.
European Commission officials, playing the key role in drawing the terms for an EU bailout, have also signalled that Ireland will have to raise the tax in order to boost state revenue to close Ireland’s widening budget deficit. However, any such move is likely to meet resistance in Dublin. “Of course, our corporate tax rate is safe,” insisted Brian Lenihan, the Irish finance minister.”
G … The Telegraph in November 18, 2010 in article Ireland Denies Surrendering Sovereignty Over Bail Out Irish reports: “Prime minister Brian Cowen has dismissed claims his government had surrendered the country’s sovereignty, as International Monetary Fund and European officials pore over its accounts to find a solution to the debt crisis.
The yield on the Irish 10-year bond fell seven basis points to 7.55pc after his comments, but remains at crippling levels. Olli Rehn, Europe’s economics commissioner, said on Wednesday that Ireland is not strong enough to back-stop a banking system that has been shut out of capital markets and suffered a haemorrhage of bank deposits.
“The Irish banking sector has to be made viable and sustainable,” he said. On Wednesday, Mr Cowen insisted that the Irish state is fully funded until June and did not need a bail-out. “What we’re involved in here is working with colleagues in respect of currency problems and euro issue problems that are affecting Ireland,” he said. Enda Kenny, Fine Gael opposition leader, ridiculed the claim, accusing him of raising the “white flag” and subjecting the country to the “dictates” of foreign masters.
Dublin hopes to dress up any bail-out as aid for banks rather than the state, but the distinction became meaningless when Ireland guaranteed its banks in September 2008. “The two are inextricably merged: it’s an omelette that is impossible to unscramble,” said Professor Brian Lucey from Trinity College Dublin.
He estimates the total cost of rescuing Anglo Irish and absorbing toxic debt through the ‘bad bank’ NAMA at €85bn. Analysts say the state may have to inject up to €15bn into Bank of Ireland and Allied Irish, AIB, after the pair lost almost €20bn of deposits in the early autumn. The ECB wants to extricate itself from the role of propping up the Irish banking system – and therefore the state – with loans equal to 80 pc of Irish GDP.”
H … Philip Aldrich of The Telegraph in November 17, 2010 article Ireland Bailout: The European Politicians Who Will Decide reports that a number have entered the bull pin: “With a banking sector worth 500 pc of GDP that is stuffed full of toxic real estate debt and underwritten by the state, the nation is trapped. Depositors are withdrawing their money in the billions, leaving Ireland at the mercy of the European Central Bank – the only institution prepared to keep Ireland limping on.
Given that the ECB is Ireland’s last remaining lifeline, ECB President Jean Claude Trichet remains the central figure in deciding the country’s fate. He wields enormous influence across Europe already, as the eurozone’s central banker, and is almost certain to shape the bail-out. Wolfgang Schaeuble, Germany’s finance minister, and Ms Lagarde – as representatives of the eurozone’s biggest members – will be enormously influential. Olli Rehn, European Union commissioner for economic and monetary affairs, and eurogroup chairman Jean Claude Juncker are also steering discussions.
With such a powerful group gathered once again to prevent another crisis from blowing out of control, it seems inevitable that Mr Lenihan and Brian Cowen, the Irish Prime Minister, will be forced to accept some kind of deal. For Ireland, following the two austerity budgets that have meant pay cuts for public sector workers, job losses and tax rises.”
I … Ireland’s Finance Minister Brian Lenihan admits that Ireland has lost its sovereign debt seigniorage as Dara Doyle of Bloomberg reports in November 18, 2010, Ireland Turns To EU As Trichet Says ECB Aid Limited. Ireland said it may ask for an international bailout as European Central Bank President Jean Claude Trichet signaled debt-laden nations can’t rely on him to keep their financial systems afloat forever. Finance Minister Brian Lenihan said in Dublin he would welcome the creation of “substantial contingency capital funding” for Irish banks, as they became “unmanageable for the state itself.”
III … The United Kingdom, The European Union and the IMF became Ireland’s Seignior today.
The Ireland seigniorage aid package prevented a domino like fall of European Financial Institutions, EUFN, whose earlier stress tests were remarkably stressless. Those in Ireland now face an increasing democratic deficit, more austerity, that being more internal devaluation, as global corporatism has strengthened european economic governance over an increasingly large number of countries. The United Kingdom is now fully integrated into global governance with the European Union.
Tom McGurk wrote in Ireland’s Sunday Business Post: “The problem here is that, if we restrict ourselves to looking at recent events, operations like QE2 and the impending bail-out of Ireland all play out against a backdrop that hasn’t changed one iota from that of earlier bailouts in the past three years, even if the media and public attention have shifted away from it. That is to say, while these measures are being presented as being beneficial for ‘the people’, they’re in actual fact the exact opposite.
If there’s one common theme in all of this, it’s that the one and only haircuts involved involve taxpayers; they conveniently get to pay the entire bill.
Financial restructurings of bankrupt and failed institutions have routinely always, and should, involve and hurt everyone with “skin in the game”. Hence, bondholders, stockholders, taxpayers et al should divide losses among them. And that’s what usually happens, or at least should happen. In the present situation, however, it does not.
Now we can argue that this has a lot to do with the fact that financial institutions have dramatically increased their level of political power in recent years, and that argument would most certainly be valid.
But there’s another, a “B”, factor that comes into play, and though it’s not entirely separate from the A factor, the political power grabbing, it’s a new player introduced into the game.
If debt restructuring would follow its normal path, which would see all stakeholders take their losses, we’d see a problem emerge that past examples didn’t have to deal with.
The kind of haircut that used to be seen as normal for parties such as banks and other financial institutions, and pension funds and more, – re: the US Savings and Loans crisis-, would today put many of these parties in a position where quite a few of them would be challenged to survive at all.
That is why the EU is negotiating with Ireland on the terms that it is, and that is why QE2 has taken the shape it has. The bottom line, which hasn’t changed for three years, is that the debts inside the vaults of these parties, the major global financial institutions, are so great that any disturbance to the established non-mark-to-market Wile E. Coyote status quo instantly threatens to topple them.
And no living politician will volunteer to initiate a potential domino reaction that may see either their national or even global banks struggling to live another day. When faced with the choice right now, every Tom Dick and Harry dreaming of political power will side with the banks, and choose to spend your future tax revenues to save the banks as well as their own political future. None among them will say: “I can’t vote this or that way, because my conscience won’t let me, but this means you won’t have access to your bank accounts anymore as per tomorrow morning.”
For Ireland, and the Irish people, this is something like: “sorry that you have to be first in line, but we need to set an example”. The EU will take over Irish fiscal and economic sovereignty, and the first thing that will go is the tax advantages for foreign corporations. And frankly, I have to say I never really got those: if and when you’re part and parcel of a union such as the EU, you can’t really hope to base your prosperity on handing Intel and Microsoft conditions they could otherwise only find in Vietnam, and still hope no-one in that union doth protest.
And before, wherever you are on the globe, you elect to count your blessings, beware: most of you will see your politicians, too, choose to save their banks rather than their people, and you too will follow the Irish down that same steep slope. It’s the old “be careful what you wish for” theme.
If Ireland should mean anything to the rest of us today, and in the days going forward, it’s as a big bold read flashing warning sign: you’re next in line.”
Ambrose Evans Pritchard wrote in Monday November 16, 2010 article The Horrible Truth Starts To Dawn On Europe’s Leaders: “My own view is that the EU became illegitimate when it refused to accept the rejection of the European Constitution by French and Dutch voters in 2005.
There can be no justification for reviving the text as the Lisbon Treaty and ramming it through by parliamentary procedure without referenda, in what amounted to an authoritarian Putsch. (Yes, the national parliaments were themselves elected – so don’t write indignant comments pointing this out – but what was their motive for denying their own peoples a vote in this specific instance? Elected leaders can violate democracy as well. There was a corporal from Austria … but let’s not get into that).
Ireland was the one country forced to hold a vote by its constitutional court. When this lonely electorate also voted no, the EU again disregarded the result and intimidated Ireland into voting a second time to get it “right”. This is the behaviour of a proto-Fascist organization, so if Ireland now – by historic irony, and in condign retribution – sets off the chain-reaction that destroys the eurozone and the European Union, it will be hard to resist the temptation of opening a bottle of Connemara whisky and enjoying the moment. But resist one must. The cataclysm will not be pretty.”
I relate that the risk on trade is not back on. Today’s rise in World Stocks, ACWI, and in the emerging markets, EEM, is simply a green shoot rally in a very strong debt-deflationary down draft. Risk aversion is still the market trend. Risk appetite does not exist as today’s action is simply a reflex action to good news.
Beginning on November 5, 2010, the bond traders seized control of both long-term interest rates, such as the Interest Rate on The US 30 Year Government Bond, $TYX, and short term rates that were formerly under the control of the world central bankers. EconomicPolicy Journal reports 30-Year Mortgage Rate Jumps Up to 4.39%. And Mike Mish Shedlock reports today: Full Year Of Muni Gains Wiped Out In 2 Weeks. Bond vigilantes will continually be taking interest rates higher as the US Federal Reserve’s Quantative Easing constitutes monetization of debt and European Sovereign debt and other sovereign debt issues remain substantially unaddressed.
The currency traders have established themselves as the world’s sovereign governing power; their rule over the world’s governments began on November 5, 2010 when the Interest rate on the US Government Bond, $TYX, sustained above 4%, and as they sold the major currencies, DBV, and emerging market currencies, CEW, which has been called the US Dollar, $USD higher.
It may seem that the world government leaders are in control, but the currency traders, still have the upper hand and will continue their program of competitive currency deflation, that is competitive currency devaluation another day. The currency traders commenced a global currency war November 5, 2010, against the world governments. Today was simply a strong battle day, in an ongoing struggle, to control the world, its peoples and resources.
Currencies rose as follows today:
The chart of the AUD/JPY, FXA:FXY, shows a rise; but today’s currency action will not be, cannot be sustained and the Australian shares, EWA, will be falling lower. It was an excellent day for those with Forex accounts to add to their short positions. The fall lower in the Leveraged Buy Outs, PSP, and Junk Bonds, JNK, suggests that US Dollar, $USD, and Yen, FXY, based carry trade investing is over and that investment liquidity is being destroyed by debt deflation. The Ibbotson Alternative Completion Index, PTO, communicates that a bear market is underway.
The chart of gold relative to the New Zealand Dollar, GLD:FXA, suggests that wealth is best preserved by investing in gold.
V. In today’s news:
Irvine Renter reports Southern California Homes Sales Sink To Lowest Level In Three Years; and Housing Kaboom reports it was the slowest September since 2007
Disclosure: I am invested in gold bullion