"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, April 9, 2013

Japanese Money Flooding European Bond Markets

The mystery, at least in my mind, of the rising Euro is now clear. Outflows of Japanese institutional money is pouring into the European bond markets in search of higher yield.

Consider the following - the yield on a 10 year Japanese government bond has fallen to 0.525%. Yes, that is not a typographical error. If you buy one of those things, you are locking money up in an IOU for TEN YEARS to obtain a half a percentage point of interest. If that is not bad enough, the underlying currency is also freefalling in value. Now, who in the world would want to do that besides the monetary authorities in Japan who are becoming and likely are going to end up staying that way, as the largest, if not sole buyer of Japanese government debt?

Believe it or not, with all the massive problems in Spain and Italy, the yield on the Spanish 10 year bond has now fallen to its LOWEST level in a year. Italian bond yields are down to 4.36%! Dow Jones is reporting that last Friday and this Monday, the yield on the 10 year notes of France, the Netherlands, Austria and Belgium hit RECORD LOWS! This is Japanese money fleeing into European bonds.

Now here is what is even more mind boggling - the Bank of Japan's own data shows that Japanese institutions hold a gargantuan $6.34 TRILLION of domestic government bonds! This is not a tide of money, it is a tsunami looking for yield!

Bubble in the US stock market? Yes, in my opinion but the bubble is going to get even bigger. Heaven help everyone of us on the planet when this man-made disaster finally reaches its crescendo!

UNLEASH THE KRAKEN.... here it comes..... where is Perseus going to come from?

Yen Gold Scores All Time High

Currency Debasement = Higher Gold Prices. Any questions?

By the way, if you think this is something, you should see what is happening to crude oil prices in Yen terms. The Japanese political and monetary leaders are certainly doing their best to kill deflation over there. Pity the average Japanese citizen whose stock portfolio is looking great while their standard of living is dropping into the toilet.

Commodities catching a Bid today

The overall tone of the commodity complex is firm in today's session as the CCI is up. From what I can see, some of this is tied to news out of China that inflation is relatively tame. This has traders breathing a sigh of relief that there will be no raising of short term rates anytime soon in China. Traders are already fearful enough of slowing growth so the last thing that they want to hear coming out of China is anything that might dampen what economic growth there is.

The second main thing is the Chilean copper strike at the giant state owned mine, Codelco. Chile produces approximately 1/3 of all global copper and thus anything that might interfere with the supply piques traders' interest. The immediate result of any strike will be to alleviate concerns about the rising stocks of the red metal at the LME, one of the main factors behind the grind lower in copper prices as hedge funds have noted that and have been heavy sellers of the metal. We are seeing some short covering occur in there.

There has been a subsequent spillover effect on silver also as a result.

Further aiding the rise across the commodity spectrum has been the weakness in the Dollar brought on by strong buying of the Euro. I am not sure what the strength in the Euro is all about. I only know that I want no part of it. Maybe there is some thinking that all the problem nations, Cyprus, Portugal, Greece, etc. will drop out of the thing leaving the stronger nations behind. Who knows what these guys are thinking anymore? As I have stated previously again and again, a long term trade to this modern generation of mindless gnats is 60 minutes.

There is also a bit of strength in the grains today as shorts cover recent extremely profitable trades while they wait for tomorrow's USDA report. It would not surprise me to see a bearish report to be quite honest although some traders, after having been burned and buried by the last report, are no doubt heading to the sideways preferring retreat as the better part of valor until they can see what numbers the bean counters over there will spit out this time around.

A comment on Silver - it has managed to pop to $28 today on the heels of all of the above - the big test for the bulls however will be to take the metal firmly past that level and hold it there. Right now, traders are still interested in selling rallies. If copper continues to firm however, they might have some second thoughts about the wisdom of doing that. Strikes are dangerous things to trade however. They can end as quickly as they begin and when that happens, traders have a nasty habit of turning around and looking at each other while they say, "what the hell is the market doing way up here?" You know what happens after that!

As usual, US equity markets are higher. What else is new? I am noting however weakness in the Russell 2000 today. That, and the Transports are also weak. Hmmm......

Doesn't seem to phase these guys however as they are pushing the Dow and the S&P 500 higher. My thinking at this point is why not just take the Dow to 16,000 and the S&P 500 to 1600 and get it over with.  The bears are not permitted to get any downside due for national security reasons so they might as well  just take the market higher into bubble territory all the while they shout out loud how cheap stocks still are.

And for those who might be wondering, Yup, the VIX is lower once again. NO FEAR.... Party Hearty.