Yen Carry Traders Take Oil And Gold Higher ... Stocks Fall On Risk Aversion To Bank Debts And Exhaustion Of The Yen Carry Trade
Monday, 23. June 2008, 05:10:18
Financial Market Report For Friday, 20. June 2008
Great Depression 2 has started
The stock market fell on risk aversion to the bank's debt and the unwinding of the yen carry trade; and the US Dollar weakened on disappointment that the Federal Reserve is unlikely to raise interest rates at its next meeting.
Concern over mortagage backed securities insured by the bond guarantors sent, MBIA, MBI, 13.3% lower, and competitor Ambac Financial Group, ABK, 1.0% higher; which Jesse relates in turn sent banks, KBE, 1.6% lower, and investment bankers, KCE, 2.4% lower.
Freddie Mac, FRE, fell 7% and Fannie Mae, FNM, fell 4%; the Financial Ninja writes that MBIA and Ambac are Dead, Fannie Mae and Freddie Mac are Next.
The session also saw "quadruple witching" -- the simultaneous expiration of four types of options contracts -- that can lead to heavy trading near the start and end of the session. It could be contributing to the steepness of the day's pullback and was adding to volume that was absent from yesterday's trading.
Commodities
The barometer of the yen carry trade, EUR/JPY, FXE:FXY daily, FXE:FXY weekly, traded up reflecting hedge fund investors and institutional investors using 0.5% Bank of Japan interest loans to take crude oil higher which jumped to $134.80 a barrel, recovering some of Thursday's drop of nearly $5 per barrel, on news of a fuel price hike of 18% in China. The oil ETF, USO, rose 2.1% manifesting a doji in the middle of a sideways consolidation pattern. Natural gas, GAZ, rose 1.4% manifesting a doji as well. Coal, KOL, fell parabolically 1.3% lower. Gold, GLD, rose 0.5%. The lollpop hanging man candlestick in oil, USO, weekly suggests that the parabolic rise in oil is over.
Jeff Wilson of Bloomberg reports that: "U.S. Midwest crop conditions deteriorated to their worst since 1996 as flooding gripped Iowa, threatening to reduce production and cause food inflation to accelerate. Some fields in Iowa, the biggest U.S. corn and soybean producer, got more than 14 inches of rain in the past two weeks ... Land devoted to corn and soybeans will drop by as much as 4 million acres, said Dan Basse, president of AgResource ... Corn rose to a record $7.915 a bushel yesterday in Chicago, and has gained 72% this year." Agriculture commodities, RJA, rose in a three white soldiers pattern, manifesting a lollipop hanging man candlestick 0.5% higher for the week, suggesting that a top for now has been put in.
Alan Bjerga of Bloomberg reports that: "Cattle futures rose to their highest in at least 22 years as the surging cost of corn renewed concern that U.S. feedlots will reduce the number of animals available for beef production... Cattle futures are up 18% since March 31 ... 'An adjustment will have to be made to the structure of the industry,' said David Kruse, a commodity trading adviser with Commstock Investments ... 'I find it hard to believe there will not be dramatic cutbacks in production.'" Livestock as a whole, COW, rose 3.4%.
Stocks
General Motors, GM, fell 6.6%, and Ford, F, 8.0% as these were placed on watch negative at Standard & Poor's. In plain English, this means they have been placed on Death Watch -- these companies are like the banks zombie corporations -- soulless, capital-eating monsters dragging the entire stock market lower. These being place on watch negative serves as America's death rattle.
Despite higher oil prices, the energy service providers, OIH, and energy producers, XLE, fell lower.
The HUI indexed precious metal mining shares, GDX, continued to disconnect from the price of gold and fell 0.5% lower.
Shares of the silver exploration mining company Silver Standard Resources Inc, SSRI, which I have continually warned investors about, fell below 1.5% lower; it is now moving below its 50 day average, while silver, SLV, is moving above its 50 day average.
Yen carry traders moved to quickly sell traditionally favored investments in basic material stocks, IYM, in the emerging markets and BRICS, such as Brazil steel manufacturer, Gerdau S.A., GGB, which fell 6.1%, and Petroleo Brasileiro, PBR, which fell 2.1% and Chinese aluminum producer, Aluminum Corp China, ACH, which fell 7.8.
And the yen carry trade investors moved to sell recent investments in the transportation sector, IYT, such as Ryder, R, which fell 2.0% and investments in the REITS, RWR, 4.0%, which includes senior care providers such as Nationwide Health Properties, NHP, which fell 2.5%.
Dow Chemical, DOW, fell 1.7% lower; it fell off the edge of a massive head and shoulders pattern.
Fertilizer manufacturer, CF Industries, CF, rose 2.8%, near to its recent all time high. Its weekly chart shows three white soldiers, in a parabolic rise documenting the awesome financial power of the former age of yen carry trade investing.
Natural gas producer, COG, fell 2.5% Its weekly chart shows two spinning top dojis.
Applied Digital Solutions, DIGA, which rose nicely during the TAF, TSLF, PDCF and yen carry trade rally, which began March 18, 2008, fell 6.25%, manifesting bearish engulfing. Recently it announced support of its approximately 49% owned subsidiary VeriChip Corporation's, CHIP, definitive agreement, to sell its wholly-owned subsidiary Xmark Corporation to The Stanley Works, SWK, for $45 million in cash as the sale will strengthen Digital Angel's core businesses of animal identification, using visual and radio frequency identification (RFID) technology for livestock, pets, horses, fish and other wildlife, and emergency identification, using global positioning system (GPS) technology for military, commercial and recreational use. And upon the closing of The Stanley Works transaction, Mr. Joseph J. Grillo will join the VeriChip Board, as Chairman, replacing Scott R. Silverman. Recently, Parke Hess was appointed as the new chief operating officer, COO, of Digital Angel. On April 30, 2002, it shares traded up to $14.20; currently it sells at $0.75.
Investing long can't work ... won't work as the profits that support investing long the stock market are not there. Paul Kasriel of Northern Trutst relates that PPI data points to profit margin squeeze: "The PPI for finished goods of all kinds was up 1.4% in May. Comparing the PPI for finished consumer goods with the CPI for consumer goods suggests that businesses are having a tough time passing-through to the consumer the higher prices they are paying for goods. … that since the late 1990s, the ratio of the CPI for core goods has been falling relative to the PPI for consumer core goods. All of this suggests that profit margins are being squeezed. Narrower profits margins in conjunction with slower growth in physical volumes are a bad combination for business profit growth."
Richard Russell of the Dow Theory Letters relates: "Lowry's statistics spell trouble, I did a double-take when I read Lowry's statistics after the close of yesterday's market. Buying Power Index at a multi-year low and Selling Pressure Index at a multi-year high. And the two Indices at about their widest (most bearish) spread in history or since the 1930s. What the devil could this mean? My guess can be summed up in one word – trouble."
Jesse provides the stock market charts for market close of week ending June 20, 2008.
The Financial Ninja reports on the bearish Hindenburg Omens that have manifested in the S&P's chart.
The top thirty fallers for the day included
Foreign
India, INP, 6.2%
China, FXI 5.1%
Brazil, EWZ, 3.1%
Japan, EWJ 3.3%
Japanese Small Companies, JSC, 2.1%
Emerging Markets EEM, 3.2%
BRICS, EEB 3.6%
Domestic
Internet, BHH 4.5%
REITS, RWR, 4.1%
Retail, XRT, 3.9%
Solar, TAN 3.7%
Homebuilders, ITB 3.4%
Consumer Discretionary, XLY, 3.3%
Semiconductors, XSD, 2.9%
Nasdaq 100, QTEC 2.9%
Internet, BDH 2.9%
Real Estate IYR, 2.5%
Steel, SLX 2.9%
Telecom, IYZ, 2.8%
Dynamic Media, 2.8%
Software PSJ, 2.7%
Active AlphaQ, 2.6%
Small Cap Value, RZV 2.3%
Alternative Energy, GEX 2.2%
Short selling the stock market, for the most part, has produced profitable returns for the last month.
Domestic stocks
SKK, Russell 2000 Growth, this has not turned profitable on a monthly basis as the red hot commodity stocks, such as Cabot Oil and Gas, COG, whose chart shows an island reversal, and Valmont Industries, VMI, which just failed, are only now starting to turn down investor Corey Rosenbloom writes, -3%
SRS, Real Estate, 11%
SSG, Semiconductor, 7%
TLL, Telecommunications, 14%
Foreign stocks and debt
EEV, Emerging markets, its rise documents the disinvestment from the BRICS, especially Inida, INP, and China, FXI, and repayment of yen carry trade loans, 18%
FXP, China, 24% It's a new upleg for UltraShort China Stocks ETF, chartist Mike Paulenoff writes
TBT, Government bonds, 4%
Bonds
The US Treasuries ETF, TLT, rose to resistance at 90 forming a dragonfly doji; its chart clearly shows that a run on the US government bonds is underway. It was on March 18, 2008, that the bond marketplace, independent of federal reserve action, declared a defacto interest rate hike, as can be seen in the chart of interest on the 30 Year US Government Bond, $TYX, which is ever moving progressively higher above the bull market breakout shown in the intersection of its 50 day and 200 day moving averages.
The run on the US Treasury bonds can also be seen in the island reversal of the zero coupon interest bond mutual fund BTTRX, and the spiked bottom of the 30 year bear market inverse government bond fund RYJUX.
There is also a run on municipal bonds as well.
Jeremy R. Cooke of Bloomberg reports that: "U.S. municipal bonds dropped, driving benchmark 30-year yields to the highest since July 2004, as local governments sought buyers for the heaviest debt calendar since October and investors sought to sell holdings."
Martin Z. Braun and William Selway of Bloomberg report that: "Rates on short-term municipal securities guaranteed by MBIA Inc.'s and Ambac Financial Group Inc.'s insurance units surged after credit rating companies downgraded the guarantors. Bonds issued by Minneapolis, Minnesota-based Allina Health System, Louisville, Kentucky-based Baptist Healthcare and Houston-based Texas Children's Hospital insured by MBIA's insurance unit surged as high as 9%, almost doubling a day after the guarantor was downgraded five levels."
Jesse comments in MBI: Dead Man Walking: "This situation with the monoline insurers is so absurd is that it would be funny were it not so serious to the real economy and so many innocent people.
What "might" save MBIA for the time being is the fact that their failure and default could trigger an extraordinary financial crisis of devaluation of private bond tranches which MBIA has insured, and might deeply impact the local government bonds market, which cuts to the heart of many concerns of US lawmakers.
All things considered, it is almost incredible that the financial system was permitted to grow into the monstrosity which it is today. Greenspan can take a huge portion of the responsibility, although Ben Bernanke is doing a great job of his short tenure so far.
Bernanke is going to have to bail out the monolines, covertly if not in the open. They are too central to the great collateralized debt ponzi scheme that is unwinding. His goal will be to keep the unwinding gracefully slow, like the 12% per year decline in the US dollar we are now experiencing, overlooked by so many to their great misfortune.
Days, weeks perhaps even a few years, its just a matter of time now. We are on the cusp of a default that will match the bubbles which spawned it.
The primary victim will be the value of the US dollar, and by extension all those who are holding it. The only question is the rate of decline."
The Dollar fell, currencies and gold rose.
I believe that the US Dollar, $USD, is going to continue to fall lower, and lead a death spiral lower in all currency values; confirmation of such comes from the fact that the rise in USD/JPY has turned down from its recent high of 108.34 to close today at 107.61.
Joseph Brusuelas, Chief Economist/VP Global strategy, Merk Investments, relates that the US Current Account is still a drag on the Dollar.
Elaine Meinel Supkis writing in Gnomes Can't Slay Inflation Genie provides this chart of Reserve Bank Credit and relates: "The Federal Reserve is hemorrhaging Treasuries. What happens when they have $0 reserves? I joked for years that the Fed is neither Federal nor has reserves. Now it will be certainly true. This is a total failure of the Fed and they want more power"?
Twin Trader asks: Are We Facing A Dollar Crisis?
We are alresdy in a dollar crisis: the Federal Reserve facilities of TAF, TSLF, and PDCF of support for the banks have only served to debase the US currency, devalue stocks and inflate the price of commodities, particulaly oil, and gold: since the first of the year oil, USO, has gone up 44%, gold, GLD, up 7%, while the DOW, DIA, and S&P, SPY, have fallen 11%.
The US Dollar, $USD, closed down this week 1.5% at $73; and gold, $GOLD, which usually trades inversely of the dollar, closed up 3.% at $904.
Currencies up this week included
the Brazilian real 1.9%,
the New Zealand dollar 1.5%,
the Australian dollar, the Aussie, FXA 1.5%,
the Euro, FXE 1.5%,
the British pound, FXB 1.5%,
the Danish krone 1.5%,
the South African rand 1.4%,
the Norwegian krone 1.4%,
the Canadian dollar, the loonie, FXC 1.3%.
the Japanese yen, FXY 1.0%
the Swiss krona, FXS 1.3%
Jesse provides the US Dollar long term charts.
Some type of dislocation or breakdown is coming to India
This last week, India shares, INP, fell 7.6%.
Kartik Goyal of Bloombberg reports that: "India's inflation accelerated to a 13-year high after record crude oil costs forced the government to raise retail fuel prices ... Wholesale prices jumped 11.05% in the week to June 7."
Anil Varma of Bloomberg reports that: "Money supply in India grew 21.4% in the two weeks ended June 6 from a year earlier, compared with 22.5% in the prior two weeks."
Something, I do not know what is going to go bang in India.
Regional economic integration is increasing in Asia
Sundeep Tucker of Financial Times reports that: "The value of mergers and acquisitions within Asia is soaring as the region's leading companies take advantage of opportunities to build scale and secure resources in fast-growing markets closer to home. The aggregate value of announced cross-border deals between Asia-Pacific companies has totalled $54bn in the year to date, according to ... Dealogic ... This compares to $25.7bn during the corresponding period last year. Bankers report that deals currently in the pipeline should mean 2008 will be a record year for intra-Asian deals."
A regional government, or formal alliance, or even a currency is likely to emerge.
In times of political duress, gold has proven to be a lifeboat of safety.
Kevin Hamlin and Nipa Piboontanasawat of Bloomberg report that: " China's monetary policy may be overwhelmed by inflows of speculative capital if it doesn't allow greater exchange-rate flexibility, the World Bank said. ' China is too large an economy not to have an independent monetary policy,' Louis Kuijs, acting chief economist for China, said ... 'To have that, you need more exchange-rate flexibility.' The World Bank today forecast inflation in the world's fourth-biggest economy of 7% this year, up from a February estimate of 4.6%. Record inflows of cash from trade, foreign direct investment and investors betting on more gains by the yuan threaten to fuel price gains. 'Excess liquidity is already a problem,' said Huang Yiping, chief Asia economist at Citigroup ... 'The expectation of significant further appreciation of the yuan is encouraging more inflows.'"
It appears that unified regulation of global banking is coming as James Politi and Gillian Tett of FT.com relate that at the onset of the June 10, 2008, EU-US 2008 Summit, held in Krajn, Slovenia, Timothy Geithner, President of the New York Branch of the Federal Reserve and Bilderberg 2008 attendee, wrote a commentary in The Financial Times, in which he called for a global financial system operating under a unified regulatory framework.
And if the US does not take military action announced under the western global governance 'Declaration of EU-US 2008', then Israel surely will as Donald Macintyre reports from Jerusalem in Israel's dry run 'attack on Iran' with 100 jet fighters; an Israeli attack on Iran is not a matter of if, but when.
Such news developments favor an investment in gold. I recommend that one be invested in gold with dollar cost averaging purchases made in a trust account, and not a brokerage account of the gold ETF, GLD, and at BullionVault.com and GoldIsMoney.com
Related Reading
The Royal Bank of Scotland issues a global stock market crash warning
Keywords
unwound yen carry trade,
Great Depression 2 has started
The stock market fell on risk aversion to the bank's debt and the unwinding of the yen carry trade; and the US Dollar weakened on disappointment that the Federal Reserve is unlikely to raise interest rates at its next meeting.
Concern over mortagage backed securities insured by the bond guarantors sent, MBIA, MBI, 13.3% lower, and competitor Ambac Financial Group, ABK, 1.0% higher; which Jesse relates in turn sent banks, KBE, 1.6% lower, and investment bankers, KCE, 2.4% lower.
Freddie Mac, FRE, fell 7% and Fannie Mae, FNM, fell 4%; the Financial Ninja writes that MBIA and Ambac are Dead, Fannie Mae and Freddie Mac are Next.
The session also saw "quadruple witching" -- the simultaneous expiration of four types of options contracts -- that can lead to heavy trading near the start and end of the session. It could be contributing to the steepness of the day's pullback and was adding to volume that was absent from yesterday's trading.
Commodities
The barometer of the yen carry trade, EUR/JPY, FXE:FXY daily, FXE:FXY weekly, traded up reflecting hedge fund investors and institutional investors using 0.5% Bank of Japan interest loans to take crude oil higher which jumped to $134.80 a barrel, recovering some of Thursday's drop of nearly $5 per barrel, on news of a fuel price hike of 18% in China. The oil ETF, USO, rose 2.1% manifesting a doji in the middle of a sideways consolidation pattern. Natural gas, GAZ, rose 1.4% manifesting a doji as well. Coal, KOL, fell parabolically 1.3% lower. Gold, GLD, rose 0.5%. The lollpop hanging man candlestick in oil, USO, weekly suggests that the parabolic rise in oil is over.
Jeff Wilson of Bloomberg reports that: "U.S. Midwest crop conditions deteriorated to their worst since 1996 as flooding gripped Iowa, threatening to reduce production and cause food inflation to accelerate. Some fields in Iowa, the biggest U.S. corn and soybean producer, got more than 14 inches of rain in the past two weeks ... Land devoted to corn and soybeans will drop by as much as 4 million acres, said Dan Basse, president of AgResource ... Corn rose to a record $7.915 a bushel yesterday in Chicago, and has gained 72% this year." Agriculture commodities, RJA, rose in a three white soldiers pattern, manifesting a lollipop hanging man candlestick 0.5% higher for the week, suggesting that a top for now has been put in.
Alan Bjerga of Bloomberg reports that: "Cattle futures rose to their highest in at least 22 years as the surging cost of corn renewed concern that U.S. feedlots will reduce the number of animals available for beef production... Cattle futures are up 18% since March 31 ... 'An adjustment will have to be made to the structure of the industry,' said David Kruse, a commodity trading adviser with Commstock Investments ... 'I find it hard to believe there will not be dramatic cutbacks in production.'" Livestock as a whole, COW, rose 3.4%.
Stocks
General Motors, GM, fell 6.6%, and Ford, F, 8.0% as these were placed on watch negative at Standard & Poor's. In plain English, this means they have been placed on Death Watch -- these companies are like the banks zombie corporations -- soulless, capital-eating monsters dragging the entire stock market lower. These being place on watch negative serves as America's death rattle.
Despite higher oil prices, the energy service providers, OIH, and energy producers, XLE, fell lower.
The HUI indexed precious metal mining shares, GDX, continued to disconnect from the price of gold and fell 0.5% lower.
Shares of the silver exploration mining company Silver Standard Resources Inc, SSRI, which I have continually warned investors about, fell below 1.5% lower; it is now moving below its 50 day average, while silver, SLV, is moving above its 50 day average.
Yen carry traders moved to quickly sell traditionally favored investments in basic material stocks, IYM, in the emerging markets and BRICS, such as Brazil steel manufacturer, Gerdau S.A., GGB, which fell 6.1%, and Petroleo Brasileiro, PBR, which fell 2.1% and Chinese aluminum producer, Aluminum Corp China, ACH, which fell 7.8.
And the yen carry trade investors moved to sell recent investments in the transportation sector, IYT, such as Ryder, R, which fell 2.0% and investments in the REITS, RWR, 4.0%, which includes senior care providers such as Nationwide Health Properties, NHP, which fell 2.5%.
Dow Chemical, DOW, fell 1.7% lower; it fell off the edge of a massive head and shoulders pattern.
Fertilizer manufacturer, CF Industries, CF, rose 2.8%, near to its recent all time high. Its weekly chart shows three white soldiers, in a parabolic rise documenting the awesome financial power of the former age of yen carry trade investing.
Natural gas producer, COG, fell 2.5% Its weekly chart shows two spinning top dojis.
Applied Digital Solutions, DIGA, which rose nicely during the TAF, TSLF, PDCF and yen carry trade rally, which began March 18, 2008, fell 6.25%, manifesting bearish engulfing. Recently it announced support of its approximately 49% owned subsidiary VeriChip Corporation's, CHIP, definitive agreement, to sell its wholly-owned subsidiary Xmark Corporation to The Stanley Works, SWK, for $45 million in cash as the sale will strengthen Digital Angel's core businesses of animal identification, using visual and radio frequency identification (RFID) technology for livestock, pets, horses, fish and other wildlife, and emergency identification, using global positioning system (GPS) technology for military, commercial and recreational use. And upon the closing of The Stanley Works transaction, Mr. Joseph J. Grillo will join the VeriChip Board, as Chairman, replacing Scott R. Silverman. Recently, Parke Hess was appointed as the new chief operating officer, COO, of Digital Angel. On April 30, 2002, it shares traded up to $14.20; currently it sells at $0.75.
Investing long can't work ... won't work as the profits that support investing long the stock market are not there. Paul Kasriel of Northern Trutst relates that PPI data points to profit margin squeeze: "The PPI for finished goods of all kinds was up 1.4% in May. Comparing the PPI for finished consumer goods with the CPI for consumer goods suggests that businesses are having a tough time passing-through to the consumer the higher prices they are paying for goods. … that since the late 1990s, the ratio of the CPI for core goods has been falling relative to the PPI for consumer core goods. All of this suggests that profit margins are being squeezed. Narrower profits margins in conjunction with slower growth in physical volumes are a bad combination for business profit growth."
Richard Russell of the Dow Theory Letters relates: "Lowry's statistics spell trouble, I did a double-take when I read Lowry's statistics after the close of yesterday's market. Buying Power Index at a multi-year low and Selling Pressure Index at a multi-year high. And the two Indices at about their widest (most bearish) spread in history or since the 1930s. What the devil could this mean? My guess can be summed up in one word – trouble."
Jesse provides the stock market charts for market close of week ending June 20, 2008.
The Financial Ninja reports on the bearish Hindenburg Omens that have manifested in the S&P's chart.
The top thirty fallers for the day included
Foreign
India, INP, 6.2%
China, FXI 5.1%
Brazil, EWZ, 3.1%
Japan, EWJ 3.3%
Japanese Small Companies, JSC, 2.1%
Emerging Markets EEM, 3.2%
BRICS, EEB 3.6%
Domestic
Internet, BHH 4.5%
REITS, RWR, 4.1%
Retail, XRT, 3.9%
Solar, TAN 3.7%
Homebuilders, ITB 3.4%
Consumer Discretionary, XLY, 3.3%
Semiconductors, XSD, 2.9%
Nasdaq 100, QTEC 2.9%
Internet, BDH 2.9%
Real Estate IYR, 2.5%
Steel, SLX 2.9%
Telecom, IYZ, 2.8%
Dynamic Media, 2.8%
Software PSJ, 2.7%
Active AlphaQ, 2.6%
Small Cap Value, RZV 2.3%
Alternative Energy, GEX 2.2%
Short selling the stock market, for the most part, has produced profitable returns for the last month.
Domestic stocks
SKK, Russell 2000 Growth, this has not turned profitable on a monthly basis as the red hot commodity stocks, such as Cabot Oil and Gas, COG, whose chart shows an island reversal, and Valmont Industries, VMI, which just failed, are only now starting to turn down investor Corey Rosenbloom writes, -3%
SRS, Real Estate, 11%
SSG, Semiconductor, 7%
TLL, Telecommunications, 14%
Foreign stocks and debt
EEV, Emerging markets, its rise documents the disinvestment from the BRICS, especially Inida, INP, and China, FXI, and repayment of yen carry trade loans, 18%
FXP, China, 24% It's a new upleg for UltraShort China Stocks ETF, chartist Mike Paulenoff writes
TBT, Government bonds, 4%
Bonds
The US Treasuries ETF, TLT, rose to resistance at 90 forming a dragonfly doji; its chart clearly shows that a run on the US government bonds is underway. It was on March 18, 2008, that the bond marketplace, independent of federal reserve action, declared a defacto interest rate hike, as can be seen in the chart of interest on the 30 Year US Government Bond, $TYX, which is ever moving progressively higher above the bull market breakout shown in the intersection of its 50 day and 200 day moving averages.
The run on the US Treasury bonds can also be seen in the island reversal of the zero coupon interest bond mutual fund BTTRX, and the spiked bottom of the 30 year bear market inverse government bond fund RYJUX.
There is also a run on municipal bonds as well.
Jeremy R. Cooke of Bloomberg reports that: "U.S. municipal bonds dropped, driving benchmark 30-year yields to the highest since July 2004, as local governments sought buyers for the heaviest debt calendar since October and investors sought to sell holdings."
Martin Z. Braun and William Selway of Bloomberg report that: "Rates on short-term municipal securities guaranteed by MBIA Inc.'s and Ambac Financial Group Inc.'s insurance units surged after credit rating companies downgraded the guarantors. Bonds issued by Minneapolis, Minnesota-based Allina Health System, Louisville, Kentucky-based Baptist Healthcare and Houston-based Texas Children's Hospital insured by MBIA's insurance unit surged as high as 9%, almost doubling a day after the guarantor was downgraded five levels."
Jesse comments in MBI: Dead Man Walking: "This situation with the monoline insurers is so absurd is that it would be funny were it not so serious to the real economy and so many innocent people.
What "might" save MBIA for the time being is the fact that their failure and default could trigger an extraordinary financial crisis of devaluation of private bond tranches which MBIA has insured, and might deeply impact the local government bonds market, which cuts to the heart of many concerns of US lawmakers.
All things considered, it is almost incredible that the financial system was permitted to grow into the monstrosity which it is today. Greenspan can take a huge portion of the responsibility, although Ben Bernanke is doing a great job of his short tenure so far.
Bernanke is going to have to bail out the monolines, covertly if not in the open. They are too central to the great collateralized debt ponzi scheme that is unwinding. His goal will be to keep the unwinding gracefully slow, like the 12% per year decline in the US dollar we are now experiencing, overlooked by so many to their great misfortune.
Days, weeks perhaps even a few years, its just a matter of time now. We are on the cusp of a default that will match the bubbles which spawned it.
The primary victim will be the value of the US dollar, and by extension all those who are holding it. The only question is the rate of decline."
The Dollar fell, currencies and gold rose.
I believe that the US Dollar, $USD, is going to continue to fall lower, and lead a death spiral lower in all currency values; confirmation of such comes from the fact that the rise in USD/JPY has turned down from its recent high of 108.34 to close today at 107.61.
Joseph Brusuelas, Chief Economist/VP Global strategy, Merk Investments, relates that the US Current Account is still a drag on the Dollar.
Elaine Meinel Supkis writing in Gnomes Can't Slay Inflation Genie provides this chart of Reserve Bank Credit and relates: "The Federal Reserve is hemorrhaging Treasuries. What happens when they have $0 reserves? I joked for years that the Fed is neither Federal nor has reserves. Now it will be certainly true. This is a total failure of the Fed and they want more power"?
Twin Trader asks: Are We Facing A Dollar Crisis?
We are alresdy in a dollar crisis: the Federal Reserve facilities of TAF, TSLF, and PDCF of support for the banks have only served to debase the US currency, devalue stocks and inflate the price of commodities, particulaly oil, and gold: since the first of the year oil, USO, has gone up 44%, gold, GLD, up 7%, while the DOW, DIA, and S&P, SPY, have fallen 11%.
The US Dollar, $USD, closed down this week 1.5% at $73; and gold, $GOLD, which usually trades inversely of the dollar, closed up 3.% at $904.
Currencies up this week included
the Brazilian real 1.9%,
the New Zealand dollar 1.5%,
the Australian dollar, the Aussie, FXA 1.5%,
the Euro, FXE 1.5%,
the British pound, FXB 1.5%,
the Danish krone 1.5%,
the South African rand 1.4%,
the Norwegian krone 1.4%,
the Canadian dollar, the loonie, FXC 1.3%.
the Japanese yen, FXY 1.0%
the Swiss krona, FXS 1.3%
Jesse provides the US Dollar long term charts.
Some type of dislocation or breakdown is coming to India
This last week, India shares, INP, fell 7.6%.
Kartik Goyal of Bloombberg reports that: "India's inflation accelerated to a 13-year high after record crude oil costs forced the government to raise retail fuel prices ... Wholesale prices jumped 11.05% in the week to June 7."
Anil Varma of Bloomberg reports that: "Money supply in India grew 21.4% in the two weeks ended June 6 from a year earlier, compared with 22.5% in the prior two weeks."
Something, I do not know what is going to go bang in India.
Regional economic integration is increasing in Asia
Sundeep Tucker of Financial Times reports that: "The value of mergers and acquisitions within Asia is soaring as the region's leading companies take advantage of opportunities to build scale and secure resources in fast-growing markets closer to home. The aggregate value of announced cross-border deals between Asia-Pacific companies has totalled $54bn in the year to date, according to ... Dealogic ... This compares to $25.7bn during the corresponding period last year. Bankers report that deals currently in the pipeline should mean 2008 will be a record year for intra-Asian deals."
A regional government, or formal alliance, or even a currency is likely to emerge.
In times of political duress, gold has proven to be a lifeboat of safety.
Kevin Hamlin and Nipa Piboontanasawat of Bloomberg report that: " China's monetary policy may be overwhelmed by inflows of speculative capital if it doesn't allow greater exchange-rate flexibility, the World Bank said. ' China is too large an economy not to have an independent monetary policy,' Louis Kuijs, acting chief economist for China, said ... 'To have that, you need more exchange-rate flexibility.' The World Bank today forecast inflation in the world's fourth-biggest economy of 7% this year, up from a February estimate of 4.6%. Record inflows of cash from trade, foreign direct investment and investors betting on more gains by the yuan threaten to fuel price gains. 'Excess liquidity is already a problem,' said Huang Yiping, chief Asia economist at Citigroup ... 'The expectation of significant further appreciation of the yuan is encouraging more inflows.'"
It appears that unified regulation of global banking is coming as James Politi and Gillian Tett of FT.com relate that at the onset of the June 10, 2008, EU-US 2008 Summit, held in Krajn, Slovenia, Timothy Geithner, President of the New York Branch of the Federal Reserve and Bilderberg 2008 attendee, wrote a commentary in The Financial Times, in which he called for a global financial system operating under a unified regulatory framework.
And if the US does not take military action announced under the western global governance 'Declaration of EU-US 2008', then Israel surely will as Donald Macintyre reports from Jerusalem in Israel's dry run 'attack on Iran' with 100 jet fighters; an Israeli attack on Iran is not a matter of if, but when.
Such news developments favor an investment in gold. I recommend that one be invested in gold with dollar cost averaging purchases made in a trust account, and not a brokerage account of the gold ETF, GLD, and at BullionVault.com and GoldIsMoney.com
Related Reading
The Royal Bank of Scotland issues a global stock market crash warning
Keywords
unwound yen carry trade,
WIDGETIZE