Traders Spurn Bernanke, Sell Freddie And Stocks, And Buy Gold
Thursday, 10. July 2008, 00:35:08
Investors spurned Bernanke
While speaking at a forum in Arlington, Virginia, yesterday Bernanke said the Federal Reserve Board will issue new rules on mortgage lending next week — rules that he said will address “the broader turmoil we have seen in the financial markets" ... “These new rules, which will apply to all lenders and not just banks, will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending.” Puget Sound Business Journal Seattle relates.
The Chairman's remarks of yesterday saved a Freddie Mac and Fannie Mae mortgage securitization collapse yesterday.
But today's trading shows that a 'systemic risk' mortgage backed securities meltdown is coming; total stock marketplace decapitlization of Freddie Mac and Fannie Mae is on the way: this being seen in their sell off today with the former off 23% and the latter off 13%.
The terrific amount of debt that is both on the books and off the books of these GSEs is both irredeemable and toxic to investment globally.
Financial commentators such as Mike Mish Sheldon have come out and related that the US Government is now "on the hook" for America's vast real estate holdings.
The ongoing stock market decapitalization of these GSEs, is going to trigger a moral hazard, where by people who are "under water" so as to speak, or greatly in debt are going to realize that GSEs are insolvent and that the US government is "on the hook" for the debt; and as Congress is on its way to approve a bailout plan that really does more for Bank of America than homeowners.
The same realization will come to investors in the US Treasuries and the US Dollar, and there will be a run on both; it's as Keith as HousingPanic related yesterday: it's time to understand that the situation is dire: Financial Armageddon is at hand.
Bears forced a sell off in the financial sector, IYF, which fell 5.1% erasing most of yesterday's rally:
Banks, KBE, -5.3%%
Investment Bankers, KCE, -5.7%
Freddie Mace, FRE -23%
Fannie Mae, FNM, -13%
Capitol One Finance, COF, -4%
CIT Group, CIT -9%
Washington Mutual, WM, -1%
Wachovia Bank, WB, -8%
Merrill Lynch, MER, -9%
Lehman Brothers, LEH, -11%
Of note, the chart of the financial sector, IYF, shows the abandonment of the the high dividend paying banks on May 1st, 2008, as institutional investors sold out to go long with the yen carry traders in indexed CRB commodity funds and ETFs, such as commodities, RJI, gold, GLD, natural gas, GAZ, agricultural products, DBA. And the chart shows the absolutely tremendous volume in financial stocks yesterday as investors were comforted by Bernanke's words, and went long this sector.
Here is the chart of Freddie Mac, FRE, showing its 23% loss today and fall to $10.25: it's going to be the spark for a global financial meltdown.
A number of sectors fell strongly; the debt related sectors the most
RWR REIT/Real Real Estate -7.6%
IYR Real Estate -7.4%
ITB Homebuilders -7.3%
KCE Investment Banking -5.7%
KBE Banks -5.3%
REM REIT Mortgages -5.3
IYG Financials -5.1%
PSP Private Equity -4.9%
AIG Insurance -4.6%
RZV Small Cap Value -4.0%
XSD Semiconductors -3.3
PEJ Leisure and Entertainment -3.3%
PXQ Networking -3.0%
IWO Russell 2000 Growth -2.9%
IYZ Telecom -2.9%
XRT Retail -2.9
XLI Industrials -2.8%
The chart of the REITS, RWR, shows risk avoidance to debt manifested strong today: REITS sold off more today than they rallied yesterday!
I've covered the health care REITS, Health Care REIT, Inc, HCN, and Long Term Care Properties, Inc, LTC, in my blog for two reasons:
First, the health care REITs, like US natural gas producer Cabot Oil and Gas, COG, and the transportation company Ryder, R, were yen carry trade investment "late commers" -- those with access to the Bank of Japan lending at 0.5% interest, made purchases only lately. And the charts of all show the same dates of disinvestment.
Secondly, the health care REITS are now going to suffer major disinvestment -- a loss of value faster than stocks as a whole, because they have lots of real estate debt, and because investors are going to recognize with greater awareness, that the assisted living care that these organizations provide can not be afforded by the US taxpayers, and will have to be liquidated, that is done away with.
Todays 1.9% fall in Energy Producers, XLE, and 1.7% fall in energy services marked an unwinding of nine weeks of yen carry trade investment in energy stocks
Cabot Oil and Gas, a recent yen carry trade darling, fell 4.2%.
The EUR/JPY, the barometer of the yen carry trade remained unchanged at 1.69.
Major Indices Fell
IWM Russell 2000 -2.7%
QQQQ Nasdaq -2.7%
SPY S&P -1.9%
DIA DOW -1.8%
Investors bought gold and sold the US Dollar
The chart of gold, shows a rise to $928 ... The US Dollar, $USD, fell from its 50 day moving aveage to close at $72.62 ... US Treasuries, TLT, rose 0.41% to 93.50.
The gold ETF, GLD, rose 0.7% to $91.50 ... the oil ETF, USO, fell 0.25%.
Gold's rise relative to oil's fall, documents its sustained investment demand.
The charts of gold relative to oil, GLD:USO, and gold relative to stocks, GLD:VTI, show an investment demand for gold is underway.
USD/JPY closed down at 107.33, continuing a trend down from a recent high above 108; its continued fall will help gold rise as the two trade inversely of each other.
Given that gold "broke out" on June 25, 2008 from $870, today's price is just right for buying. Here is an important article written by Peter A Grant, that describes the breakout: Gold Surges as Oil Hits Record and Stocks Plunge. It was at that time I wrote Unwinding Of The Yen Carry Trade Is Underway.
Alf Field in his July 2, 2008 article Elliott Wave Gold Update 20 shows gold to be in outbreak.
It's entirely likely that when the cataclysm starts, one may not be able to have access to one's wealth; therefore I recommend that one start now to dollar cost average an investment in gold in the gold ETF, GLD, in a trust account over the next two weeks, as well as a dollar cost average purchase of gold at both BullionVault.com and GoldIsMoney.com.
Related Articles
1 ... GSE's Falling Into the Abyss, by Frank Barbera, CMT; he relates:
Housing is nowhere close to an important bottom at the current time and as housing continues its decline, balance sheet collateral values will continue to shrink, amplifying the systemic margin call now rumbling its way through the US monetary system.
To this end, AP reported on Monday, that so far in 2008, S&P has seen 1.3 TRILLION dollars wiped out within the financial industry. What’s more, AP noted that “even more startling, is that shares of 35 companies, including bond insurers, have lost MORE than half their value so far this year.” For the US, which has been the consumer growth engine for the entire globe over the last twenty years, the rise of the Financial Economy has towered like a giant, entirely overshadowing the Mainstreet economy, especially in the last 10 years. As a result, it is difficult to describe the severity of the wound, as an implosion in the Financial Economy will ultimately translate into collapsing aggregate demand and huge job losses as one institution after another closes its doors. Just yesterday, Indymac Bank, long hailed as an innovator and poster child for intelligent lending, stopped accepting new loan submissions in its main mortgage lending division and announced plans to cut 3,800 of its 7,200 employees. I can remember personally sitting through a one hour analyst presentation on the merits of Indymac Bank not more then 2 years ago. At the time, no one, including myself, would have possibly imagined a collapse on this scope and breadth. Perhaps Mohamed El-Erian, co-chief executive officer of PIMCO and former CIO of the Havard endowment said it best with a quote last week, “we are living through the unthinkable.”
2 Inflation Is Queen of Spades ... by Elaine Meinel Supkis
Ms Supkis provides some helpful inight as to what brought us to the edge of the precipice that we are at today: "Cheap lending below the rate of inflation causes more debts and more inflation. It is like pouring fuel on a fire. High rates are cold water. There is no other way out. People can and do hoard things when there is inflation. For a while, gold is used to circumvent inflation but that ends, too, with a crash. Everything ends with a crash. Inflation will and can and does eat up all wealth if nothing is done to strengthen savings! No nation can operate with no banking system! And all of this is political: if we want to put even the poor into deep, 30 year debt so they can live in houses they can't fix, control or protect, is sheer folly. And adding several trillion a year in new debt to the commercial markets for buy-ups and buy-outs, is pure insanity!"
"Another common theme here at Culture of Life news is the Japanese carry trade business and the pirate islands that funnel all this lending into the West to be turned into higher-interest debts. This debt pyramid scheme is very deadly. So long as the world's #3 economy insists on handing out loans at far below the rate of Japanese inflation, not to mention global inflation, and so long as Bernanke does the same with 2% lending from the world's #1 economy, we will have worsening global inflation EVEN if lending slows due to lack of ability to pay back these new loans! Both the US and Japan have to recognize their lending rates are the root cause of all inflation".
3 ... Gold firms on Iranian Missle Test by Peter A Grant
4 ... Drivers of Inflation by Monty Guild & Tony Danaher
Keywords
Unwinding of the yen carry trade, financial stability, systemic risk event, systemic risk events.
While speaking at a forum in Arlington, Virginia, yesterday Bernanke said the Federal Reserve Board will issue new rules on mortgage lending next week — rules that he said will address “the broader turmoil we have seen in the financial markets" ... “These new rules, which will apply to all lenders and not just banks, will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending.” Puget Sound Business Journal Seattle relates.
The Chairman's remarks of yesterday saved a Freddie Mac and Fannie Mae mortgage securitization collapse yesterday.
But today's trading shows that a 'systemic risk' mortgage backed securities meltdown is coming; total stock marketplace decapitlization of Freddie Mac and Fannie Mae is on the way: this being seen in their sell off today with the former off 23% and the latter off 13%.
The terrific amount of debt that is both on the books and off the books of these GSEs is both irredeemable and toxic to investment globally.
Financial commentators such as Mike Mish Sheldon have come out and related that the US Government is now "on the hook" for America's vast real estate holdings.
The ongoing stock market decapitalization of these GSEs, is going to trigger a moral hazard, where by people who are "under water" so as to speak, or greatly in debt are going to realize that GSEs are insolvent and that the US government is "on the hook" for the debt; and as Congress is on its way to approve a bailout plan that really does more for Bank of America than homeowners.
The same realization will come to investors in the US Treasuries and the US Dollar, and there will be a run on both; it's as Keith as HousingPanic related yesterday: it's time to understand that the situation is dire: Financial Armageddon is at hand.
Bears forced a sell off in the financial sector, IYF, which fell 5.1% erasing most of yesterday's rally:
Banks, KBE, -5.3%%
Investment Bankers, KCE, -5.7%
Freddie Mace, FRE -23%
Fannie Mae, FNM, -13%
Capitol One Finance, COF, -4%
CIT Group, CIT -9%
Washington Mutual, WM, -1%
Wachovia Bank, WB, -8%
Merrill Lynch, MER, -9%
Lehman Brothers, LEH, -11%
Of note, the chart of the financial sector, IYF, shows the abandonment of the the high dividend paying banks on May 1st, 2008, as institutional investors sold out to go long with the yen carry traders in indexed CRB commodity funds and ETFs, such as commodities, RJI, gold, GLD, natural gas, GAZ, agricultural products, DBA. And the chart shows the absolutely tremendous volume in financial stocks yesterday as investors were comforted by Bernanke's words, and went long this sector.
Here is the chart of Freddie Mac, FRE, showing its 23% loss today and fall to $10.25: it's going to be the spark for a global financial meltdown.
A number of sectors fell strongly; the debt related sectors the most
RWR REIT/Real Real Estate -7.6%
IYR Real Estate -7.4%
ITB Homebuilders -7.3%
KCE Investment Banking -5.7%
KBE Banks -5.3%
REM REIT Mortgages -5.3
IYG Financials -5.1%
PSP Private Equity -4.9%
AIG Insurance -4.6%
RZV Small Cap Value -4.0%
XSD Semiconductors -3.3
PEJ Leisure and Entertainment -3.3%
PXQ Networking -3.0%
IWO Russell 2000 Growth -2.9%
IYZ Telecom -2.9%
XRT Retail -2.9
XLI Industrials -2.8%
The chart of the REITS, RWR, shows risk avoidance to debt manifested strong today: REITS sold off more today than they rallied yesterday!
I've covered the health care REITS, Health Care REIT, Inc, HCN, and Long Term Care Properties, Inc, LTC, in my blog for two reasons:
First, the health care REITs, like US natural gas producer Cabot Oil and Gas, COG, and the transportation company Ryder, R, were yen carry trade investment "late commers" -- those with access to the Bank of Japan lending at 0.5% interest, made purchases only lately. And the charts of all show the same dates of disinvestment.
Secondly, the health care REITS are now going to suffer major disinvestment -- a loss of value faster than stocks as a whole, because they have lots of real estate debt, and because investors are going to recognize with greater awareness, that the assisted living care that these organizations provide can not be afforded by the US taxpayers, and will have to be liquidated, that is done away with.
Todays 1.9% fall in Energy Producers, XLE, and 1.7% fall in energy services marked an unwinding of nine weeks of yen carry trade investment in energy stocks
Cabot Oil and Gas, a recent yen carry trade darling, fell 4.2%.
The EUR/JPY, the barometer of the yen carry trade remained unchanged at 1.69.
Major Indices Fell
IWM Russell 2000 -2.7%
QQQQ Nasdaq -2.7%
SPY S&P -1.9%
DIA DOW -1.8%
Investors bought gold and sold the US Dollar
The chart of gold, shows a rise to $928 ... The US Dollar, $USD, fell from its 50 day moving aveage to close at $72.62 ... US Treasuries, TLT, rose 0.41% to 93.50.
The gold ETF, GLD, rose 0.7% to $91.50 ... the oil ETF, USO, fell 0.25%.
Gold's rise relative to oil's fall, documents its sustained investment demand.
The charts of gold relative to oil, GLD:USO, and gold relative to stocks, GLD:VTI, show an investment demand for gold is underway.
USD/JPY closed down at 107.33, continuing a trend down from a recent high above 108; its continued fall will help gold rise as the two trade inversely of each other.
Given that gold "broke out" on June 25, 2008 from $870, today's price is just right for buying. Here is an important article written by Peter A Grant, that describes the breakout: Gold Surges as Oil Hits Record and Stocks Plunge. It was at that time I wrote Unwinding Of The Yen Carry Trade Is Underway.
Alf Field in his July 2, 2008 article Elliott Wave Gold Update 20 shows gold to be in outbreak.
It's entirely likely that when the cataclysm starts, one may not be able to have access to one's wealth; therefore I recommend that one start now to dollar cost average an investment in gold in the gold ETF, GLD, in a trust account over the next two weeks, as well as a dollar cost average purchase of gold at both BullionVault.com and GoldIsMoney.com.
Related Articles
1 ... GSE's Falling Into the Abyss, by Frank Barbera, CMT; he relates:
Housing is nowhere close to an important bottom at the current time and as housing continues its decline, balance sheet collateral values will continue to shrink, amplifying the systemic margin call now rumbling its way through the US monetary system.
To this end, AP reported on Monday, that so far in 2008, S&P has seen 1.3 TRILLION dollars wiped out within the financial industry. What’s more, AP noted that “even more startling, is that shares of 35 companies, including bond insurers, have lost MORE than half their value so far this year.” For the US, which has been the consumer growth engine for the entire globe over the last twenty years, the rise of the Financial Economy has towered like a giant, entirely overshadowing the Mainstreet economy, especially in the last 10 years. As a result, it is difficult to describe the severity of the wound, as an implosion in the Financial Economy will ultimately translate into collapsing aggregate demand and huge job losses as one institution after another closes its doors. Just yesterday, Indymac Bank, long hailed as an innovator and poster child for intelligent lending, stopped accepting new loan submissions in its main mortgage lending division and announced plans to cut 3,800 of its 7,200 employees. I can remember personally sitting through a one hour analyst presentation on the merits of Indymac Bank not more then 2 years ago. At the time, no one, including myself, would have possibly imagined a collapse on this scope and breadth. Perhaps Mohamed El-Erian, co-chief executive officer of PIMCO and former CIO of the Havard endowment said it best with a quote last week, “we are living through the unthinkable.”
2 Inflation Is Queen of Spades ... by Elaine Meinel Supkis
Ms Supkis provides some helpful inight as to what brought us to the edge of the precipice that we are at today: "Cheap lending below the rate of inflation causes more debts and more inflation. It is like pouring fuel on a fire. High rates are cold water. There is no other way out. People can and do hoard things when there is inflation. For a while, gold is used to circumvent inflation but that ends, too, with a crash. Everything ends with a crash. Inflation will and can and does eat up all wealth if nothing is done to strengthen savings! No nation can operate with no banking system! And all of this is political: if we want to put even the poor into deep, 30 year debt so they can live in houses they can't fix, control or protect, is sheer folly. And adding several trillion a year in new debt to the commercial markets for buy-ups and buy-outs, is pure insanity!"
"Another common theme here at Culture of Life news is the Japanese carry trade business and the pirate islands that funnel all this lending into the West to be turned into higher-interest debts. This debt pyramid scheme is very deadly. So long as the world's #3 economy insists on handing out loans at far below the rate of Japanese inflation, not to mention global inflation, and so long as Bernanke does the same with 2% lending from the world's #1 economy, we will have worsening global inflation EVEN if lending slows due to lack of ability to pay back these new loans! Both the US and Japan have to recognize their lending rates are the root cause of all inflation".
3 ... Gold firms on Iranian Missle Test by Peter A Grant
4 ... Drivers of Inflation by Monty Guild & Tony Danaher
Keywords
Unwinding of the yen carry trade, financial stability, systemic risk event, systemic risk events.
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