Financial Market report on the toxic effect of quantitative easing as of May 18, 2011
Inflation Destruction is the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies.
Inflation destruction begets more of the same as former vigilant investors turn short sellers, and carry out their attack on their former investment, by going short the 200% ETFs, such as ProShares Ultra India, INDL, and Ultra BRICS, BRIL as is seen in the chart of EET, INDL, and BRIL
Inflation Destruction may precede Debt Deflation which is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
The Age of Leverage was characterised by debt expansion, credit liquidity, stability, world wide currency expansion, economic growth and expansion and prosperity … yet with competitive currency devaluation and the rise of the US Dollar, the world has passing into The Age of Deleveraging characterised by inflation destruction, sovereign debt failure, debt deflation, credit ill-liquidity, instability, economic contraction and austerity.
Between The Hedges reports The Spain sovereign cds is rising +2.8% to 240.50 bps, the Greece sovereign cds is rising +3.07% to 1,313.15 bps and the US sovereign cds is jumping +11.1% to 45.75 bps. India’s Sensex continues to trade very poorly, falling another -.28% overnight, despite gains in the rest of Aisa, and is now down -11.81% for the year. As well, Brazil’s Bovespa is falling another -.84% today and is down -8.98% ytd. While today’s commodities, DJP, surge is a short-term positive for the broad market, it remains a longer-term negative as it intensifies emerging market inflation fears and raises the odds of hard-landings in those economies.
The Financial Express reports Worst Performer Among BRIC, Indian Bonds to Extend Drop on Spiraling Fuel Prices. Indian bonds, the worst performers among Bric nations, may extend declines as the biggest increase in gasoline prices in three years threatens to accelerate inflation, banks and primary dealers say. Yields on 10-year government debt will rise 10 basis points, or 0.10 percentage point, by June 30 to 8.40%, the highest level since October 2008, according to the median estimate of nine analysts in a survey.
The chart of HDFC Bank Ltd. HDB, compared to India, INDY, India Small Caps, SCIN,China Small Caps, HAO, Brazil Small Caps, BRF,and Russia Small Caps, RSXJ …. HDB, INDY, SCIN, HAO, BRF, RSXJ shows that inflation destruction is causing a failure of the seigniorage of both the US Central Bank as well as the seigniorage of the India Central Bank resulting first in a destruction of banking capital and then a destruction of investment capital especially in the BRIC small cap stocks.
Much can be said the same of Turkey, as seen in the chart of TUR and HDB
Debt Deflation, that is currency deflation is underway in the India Rupe, ICN,
An investment maxim is, in a bull market be a bull and buy on price dips; in a bear market be a bear and sell into rises. Today’s rally was a short selling opportunity in SIVR, IEZ, AMJ, XME, XLE, EEM, YAO, XLB, KOL, IYJ, IWO, RZG, EWY, IYM,
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