Contributor Since 2010
I … The News Reports
A … Colleen Barry of the Associated Press in article World Stocks Slide Amid Euro Zone Debt Worries, reports that European investors were cautious ahead of bank repayments of euro 442 billion in credits to the European Central bank later this week as well as debt auctions in France and Spain. Such factors were making the euro “the currency market’s whipping boy,” said CMC Markets analyst Michael Hewson. In Asia, markets slid after mammoth share sale in China dragged Shanghai stocks down and dour Japanese economic data that could foreshadow weaker business confidence when the Bank of Japan’s “tankan” survey is released on Thursday.
B … Ross-Thomas of Bloomberg BusinessWeek in article Spain Hopes ECB Knows Banks’ Needs As Loan Matures, reports that on July 1 banks need to repay 442 billion euros ($540 billion), the biggest amount ever awarded by the ECB and a key plank in its efforts to fight the /financial crisis last year.
Spanish policy makers are concerned about the expiry of the 12-month facility as Europe’s sovereign debt crisis makes banks wary of lending to each other. The Frankfurt-based ECB, which continues to lend banks as much money as they need as its benchmark rate of 1 percent, no longer offers 12-month loans. It will offer three-month money at a tender tomorrow.
International capital markets are “closed” to most Spanish companies and banks, Francisco Gonzalez, chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-largest bank, said on June 14.
Uncertainty over the strength of Spain’s savings banks, which are going through a series of mergers with support from a government rescue fund, has helped send the risk premium on Spanish government debt to a euro-era record.
Risk premium is seen in the extra yield investors demand to hold Spanish 10-year bonds rather than the benchmark German equivalents rose to 199.4 basis points today from 195.1 basis points yesterday. The spread reached a euro-era record of 221.2 basis points on June 16.
II … The Charts
A … The Google Finance chart of trendsetter ETFs since April 16, 2010 shows the disinvestment caused by the currency traders going short the world’s currencies against the Yen, FXY, and investment contagion spreading through the European Financials, EUFN, has caused world stocks, ACWI, and base metals, DBB, to fall; a list of trendsetting ETFs shows the following loss of value:
EWJ -13% Japan, -2.4% today
IWM -13% Russell 2000 These financially sensitive, that is credit sensitive, shares fell 3.9%, as the too-big-too-fail shares fell 4.5% and the KBE, regional banks fell 4.3% .
XLI -14% Industrials; -3.8%
SMH xx% Semiconductors; -3.9% At market turns these rise/fall heavily.
EWZ -17% Brazil; -5.1 A lot of Euro carry trade and Real carry trade investment came out of Brazil today, as currency traders bought the Yen, FXY, to repay 0.25% carry trade loans from the Bank of Japan and its proxies.
IYM -17% Basic Materials -4.1% Metal manufacturing fell 6.1%; steel 5.7%; energy services 3.9% and energy production 3.3%.
KBE -18% Regional Banks -4.3%
RWW -19% Too Big To Fail Banks -4.5%
DNH -21% Asia; -5.4%
RZV -23% Pure Value Small Cap; -4.3%
EWA -23% Australia; -4.8% A major sell off in the Australian Dollar, FXA, caused the Aussie carry trade: FXA:FXY to sell of and resulted in the sharp sale off in Australian shares, Base metals and the Asian shares.
DBB -25% Base Metals; -4.5%
EUFN -23% European Financials; -4.1%
FEZ -24% Europe; -.4.5%
EWP -29% Spain; -5.4%
B … The MSN Finance chart of IWM, EWJ, XLI, EWZ, IYM, KBE, RWW, DNH, DBB, FEZ for the period of April 26, 2010 through June 29, 2010 shows the losses graphically.
C …. The Yahoo Finance Chart of the EURJPY relative to world shares, ACWI, shows the unwinding of the euro yen carry trade caused disinvestment from stocks globally as the EUR/JPY fell to 108.
D … The Finviz Screener of leading ProShares 200% inverse ETFs shows the following gains for short sellers today:
INDZ no report at the time of publishing this article.
BZQ 10.0% A strong sell of the Brazilian Real, BZF, against the Yen, FXY, by the currency traders, caused an unwinding of carry trade investment in Brazil, EWZ, rewarding those short with BZQ.
JPX 9.5% Asian shares excluding Japan fell hard today on an unwinding of the Aussie carry trade, FXA:FXY, rewarding those short with JPX.
SJH 9.2% The Russell 2000, IWM, fell as the too-big-too-fail shares, RWW, fell 4.5% and the regional banks, KBE, fell 4.3% causing the finally sensitive small cap US shares to fall heavily, rewarding those short with SJH.
BRIS 9.1% A major sell of in the Ruble, XRU, and the Real, BZF, against a rising Yen, FXY, caused the Brics to sell off, resulting in a gain for those short with BRIS.
SMN 8.3% Basic material shares sold off heavily on today’s falling EUR/JPY.
SSG 7.8% Semiconductors always rise and fall sharply at market turns; those short semiconductors, SMH, were rewarded today with SSG.
I believe that the Proshares 200% inverse of the Russell 2000, SJH, will offer the best and most steady performance of the 200% Proshare bear market ETFs as financial shares deteriorate both globally and in the US, as the small US companies are critically dependent upon stable and low-cost credit to meet payroll, fund accounts payable and meet health care costs.
E … Aggregate Debt and US Ten Year Notes have gone parabolically higher
Chart of AGG
Chart of IEF
F. The US Dollar, $USD, traded by UUP, has fallen to support; it is unlikely to rise above its prior high; we have entered the age of competitive currency devaluations where all fiat currencies will fall into the pit of abandon together
G. Gold, $GOLD, and gold alone will preserve wealth; it will be the only currency to survive debt deflation
Precious metal mining shares such as the small mining, GDXJ, have disconnected from the price of gold and have fallen lower with other stocks.
The HUI precious metal mining shares, $HUI, and US Treasuries, $USB, generally make market turns together; the mining shares, GDX, relative to the government bonds have now turned lower; it is unlikely that they will rise to their previous highs.
Symbols used in this report: GLD, UUP, GDX, GDXJ, FXY, FXE, IEF, AGG, SJH, BZQ, JPX, BRIS, SMN, SSG, EPV, XRU, BZF, ACWI, IWM, XLI, EWZ, IYM, KBE, RWW, DNH, DBB, FEZ, EWP, EUFN, EWA, FXA, RZV, SMH