I ... Today's News
A … EuroIntelligence Relates That The ECB’s Bond Purchase Programme Has Effectively Ended
EuroIntelligence reports ”So all this talk about the downward trend in bond purchases was merely to prepare the pubic for the drastic fall in bond purchases in the previous week, during which the ECB bought bonds worth only €1bn – the exact amount will be released today.”
The bond purchases started with 16 Billion on May 11, 2010 and concluded with 1 Billion on July 7, 2010.
“FT Deutschland says pressures from banks to sell their holdings has eased somewhat, but some analyst were expecting a rebound in bond yields once the programme ends officially. In the last few days several ECB officials spoke about phasing out the bond purchase programme, while the IMF warned the ECB was not doing enough. In a separate article, the paper also quoted several market observers as saying the southern European bond markets were not yet in a position to survive on their own.”
B … Satyajit Das Comments Negatively On The EFSF Monetary Authority
EuroIntelligence goes onto to report: “This in our view is one of the best articles ever written on the EFSF, Satyajit Das writes in the FT that this vehicle is nothing but a re-incarnation of the worst excesses of the credit crisis, where debt was shuffled from one corner into another, becoming less transparent in the process. He goes through the maths of the EFSF, and finds that even with the over collateralization of 20% the vehicle is still risky. This is his conclusion:
“The reality is that a problem of too much debt is being solved with even more debt. Deeply troubled members of the eurozone cannot bail out each other as the significant levels of existing debt limit the ability to borrow additional amounts and finance any bail-out. The EFSF is primarily a debt shuffling exercise which may be self-defeating and unworkable. The resort to discredited financial engineering highlights the inability to learn from history and the paucity of ideas and willingness to deal with the real issues. “
II ... ETFs Rising Strongly Today Included:
GXF, 4.4% Nordic,
RZV, 4.1% Small Cap Value,
EWD, 3.9% Sweden,
XHB, 3.8%, Housing
RWW, 3.3% RevenueShares Financial,
EUFN, 3.2% European Financials,
IWM, 3.1% Russell 2000,
KBE, 2.8% Banks,
XRT, 2.7% Retail
SMH, 2,1% Semiconductors,
FEZ, 2.3% Europe; click on chart to enlarge
III ... Commentary… Stocks are rallying, but credit appears to be frail. When Stocks Turn Down, Will Credit Liquidity Evaporate And Interest Rates Soar?
I believe it premature to say that the ECB’s bond purchase programme has ended. Has the liquidity squeeze on Spain’s banks eased. Is lending more plentiful in Spain today? Are banks substantially more capitalized today in Spain than a month ago?
And I agree that the EFSF monetary authority solves nothing; it is simply another extend and pretend fiasco.
The ongoing chart of the European Shares, FEZ, the euro yen carry trade, FXE, FXY, the Russell 2000, IWM, and banks, KBE, shows that beginning on Thursday, July 8, 2010, through today, Tuesday July 13, 2010, the stock rally has been supported by the currency traders and their euro-yen carry currency trade; click on chart to enlarge.
Today, the stockcharts.com chart of FXE:FXY shows that the spigot of currency liquidity is on and moving up to its 50 day moving average; click on chart to enlarge.
I believe that since the Yen, FXY, turned down from its high of 113.19 on July 6, 2010, and manifesting a dark cloud covering candlestick on July 7, 2010, we have entered into the age of competitive currency devaluations, where all currencies are falling rapidly into the pit of abandon together, albeit at different rates; click on chart of FXY to enlarge.
In passing, I relate the chart of Switzerland, EWL, compared to Sweden, EWD, Developing Europe, GUR, Europe, FEZ, and Austria, EWO, for the last 90 days shows that Europe and Austria have experience the greatest loss of stock value.
Today, Sweden, EWD, exploded higher; there probably is a carry trade story here, but I have done no research to investigate as I have focused more on the Swiss Franc; click on chart to enlarge
The chart of Sweden, EWD, shows a stellar performance.
The Swiss Franc Australian Dollar carry trade that I have been reporting on, retained its strong position today; click on chart of FXF:FXA to enlarge.
The Euro, FXE, closed at 126.73. Strong resistance comes in for the Euro at 127 and 128; click on chart to enlarge.
While stocks are rallying, the longer out, that is the 20 to 30 year US Treasury ETF, TLT, has turned parabolically lower ... This has caused the 300% inverse of the 30 Year US Government Bond, TMV, to break out. This coupled with the slight downturn in corporate bonds, CFT suggests that interest rates have “turned the corner” and are headed higher.
Chart of TLT; click on chart to enlarge
Chart of CFT; click on chart to enlarge.
Chart of Aggregate Debt, AGG, shows a turn lower. Will this turn start a permanent downtrend? We will soon know!
Could the next stage of global financial distress come from two factors? First, with the European Financial Institution shares, EUFN, falling on lack of ECB bond purchases, or on disappointment with funding of the EFSF, or disappointment over the European bank stress tests? And secondly, with higher US Government interest demanded by the marketplace with the 30 Year interest rate, $TYX, and the 10 Year interest rate, $TNX, rising … resulting in the ZROZ, TLT and IEF falling?
The world entered into debt deflation on April 26, 2010 when currencies sold off worldwide against the US Dollar. When stocks turn down, will credit liquidity evaporate and interest rates soar? Will the age of “the end of credit” commence at that time?
If stocks and bonds are both deflationary in the future, would not gold be a safe haven investment?
One thing is for sure, the Direxion 300% inverse of the 30 year government bond, TMV, is rising from a spiked bottom.
Symbols used in this report: EUFN, TLT, TMV, CFT, FXY, FXE, EWL, EWD, GUR, FEZ, EWO, AGG, FEZ, FXF
Disclosure: I am invested in gold coins