Inches away from an Asian/US trade war (update 6) -China's PMI up 53.1%, South Korea's PMI down 48.8% (contraction)

As the rest of Asia contracts and China expands via a re-pump of cheap products swamping the world + China's housing bubble (the mother of all bubbles)

You can guarantee that Japan and South Korea will devalue the currencies like no tomorrow and the US will' go all out war' with trade tariffs.

FX currency Wars - Brazil

As discussed in Commodity producing countries under pressure (political/economic), most exports nations are now amidst a global FX war, sparked by the Japan's Bank of Japan/Ministry of Finance intervention into the FX markets on September 14th 2010, although somwhat a failure, Japanese FX intervention will continue. Commodity producing countries from South Africa to the export tech orientated countries of South Korea and Taiwan have now all begun a currency devaluation. Brazil made the verbal call that a 'FX War' had broken out, yet when a country embarks on currency devaluation it shifts it's growth (lack of) issues or problems onto other countries, a dangerous form of protectionism as all countries start to devalue currency to stay competitive.

At this point intervention rhetoric by Guido Mantega of the Brazil's Finance minister won't be enough with the REAL now at close to post Lehman 'crash' highs refer to chart now @ 1.6961 (close 30 Sept 2010) from the open of 1.6682 (9th Nov 2009)



If the US dollar weakens and falls through further supports and goes into a devaluation cycle, 'hot flows' of money will pour into other countries namley the export giants like Brazil, that are desperately trying to curb inflation and assets bubbles. A devaluation of money is a 'cheap' way of shifting that flow of hot money from (USD weakness) away from a country with a higher yield, or safe haven . Rather than pass on interest rates to the consumer (to tackle asset bubbles from inflows of money, speculation etc), central banks, like Brazil will simply devalue its currency and pass on the problem to other country. If governments do not want civil strive (but unfortunately an inevitable aspect of our human psyche) in their own countries as exports become more expensive then (a short term solution) a devaluation cycle occurs, i.e foreign exchange war.

Doomsday Trading - Anglo Bank of Ireland bailout costs, Spain downgrade (update 2)

Expect an eventual IMF bailout as Ireland will struggle to raise bailout amount. Civil protests and disruption will ensure

Bloomberg 29 Sept 2010

"Anglo Irish Bank Corp. and Allied Irish Banks Plc may need as much as 14.4 billion euros ($19.6 billion) in extra capital, the country’s central bank said.

Anglo Irish, nationalized last year, may need up to an additional 6.4 billion euros of capital from the government in a so-called base case scenario, the Dublin-based central bank said in an e-mail statement today. That may rise by another 5 billion euros in the event of unexpected losses.

“The market had come to expect the Anglo Irish figures,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin. “The surprise here is Allied Irish.”

Ireland has pumped 22.9 billion euros to date into Anglo Irish since it seized the lender in January 2009 as its bad loans soared following the collapse of a decade-long real-estate bubble. The government has injected a total of about 33 billion euros into Irish banks and building societies. Allied Irish may need 3 billion euros in capital, and the government will announce plans to recapitalize the lender, the statement said."

(Above photo Spain protests Sept 2010)

Spain looses it's AAA credit rating down a notch to Aa1. Moody's was lite. Still the people of Spain should be appalled at the reckless spending and speculation that their government embarked on prior to their debt crisis. Spain is a great country, good food, good people.

Market Watch Twitter

Watch any overbided risk assets on HFT's for major sell signals. October market 'crash' omens

disclaimer: MEC Research - trade at your own risk

Commodity producing countries under pressure (political/economic - Canada) - GDP going negative (update 8)

Should be a good bell weather sign that a global slow down is priced in for the final 3mths of 2010 going into 2011

WSJ Sept 29 2010

" OTTAWA (Dow Jones)--Canadian Finance Minister Jim Flaherty said Wednesday that July's gross domestic product figure may be "a bit negative." Statistics Canada will release the data at 8:30 a.m. EDT Thursday. The market expects output to have contracted 0.1% in light of soft retail, wholesale and manufacturing sales data. A weak figure may cause the Bank of Canada to hit the pause key on rate hikes after three consecutive increases. "We may see a figure for July tomorrow that's a bit negative, but in July a lot of things happened in Canada, like the introduction of the HST (harmonized sales tax) in two of the largest provinces and a 2% increase in the sales tax in the province of Nova Scotia. So there are reasons for that," Flaherty told reporters after Question Period in Parliament."

The PBoC are....(update 4)

(
telling the US to fuck off out of their affairs...

Note PBoC fixing at higher rate after Congress (finally had the balls) passed the Chinese Yuan Bill

things are just about to get more interesting...

Dow is looking rangy and weak, closing of September 2010 trades

Nine days of rangy trading starting from the high reached on the 20th September 2010 @10774.13 and the close on the 29th September 2010 @ 10835.13. Low volume and most likely high frequency trading that are grinding on a tight bid/offer between 10608 and 10834. With end of the month book closing and profit taking, buying into this now rangy and weak looking market would be insane. September seasonly is meant to be a volatile and general sell side month instead we had a buy on a dribble of liquidity supported by HFT trading, October 2010 and November 2010 should correct this with over bought markets now looking like to sell into the close of 2010.

A 'flash crash' within the last 3mths of 2010 cannot be ruled out, low volume marked up buys on tight bid/offers and overbidding via HFT trading; all the hallmarks of pre flash crash or a significant market correction. The 'light' to set this off? Euro Zone problems (rioting, protests, strikes) and/or a debt contagion from Ireland (Anglo Irish Bank bailout failure) will set off a major market correction. Other possible scenario is total US dollar weakness and trade war/tensions with China.

Time to 'short' Australia's housing bubble (update 3). Fitch rating agency coming stress tests: AUST HOUSING

• mild stress (2.5% of mortgage defaults with a 20% property price decline)
• medium stress (6% mortgage defaults with a 30% property price decline)
• severe stress (8% mortgage defaults and a 40% property price decline).

Good to watch Aust bond yields as the AUD reaches bubble status.

Doomsday Trading - (Terrorist Threat Sept 2010 US/EU/UK) (update 1)

" US and European officials said Tuesday they have detected a plot to carry out a major, coordinated series of new terror attacks in the United Kingdom, France, Germany and possibly the United States. A senior US official said that while there is a "credible" threat, no specific time or place is known. President Obama has been briefed about the threat, say senior US officials.Intelligence and law enforcement authorities in the US and Europe said the threat information is based on the interrogation of a suspected German terrorist allegedly captured on his way to Europe in late summer and now being held at Bagram Airfield in Afghanistan. US law enforcement officials say they have been told the terrorists were planning a series of "Mumbai-style" commando raids on what were termed "economic or soft" targets in the countries."

from ABC

Watch US/European opens 29th September 2010

disclaimer: MEC Research - trade at your own risk

Doomsday Trading - Takefuji Bankruptcy (Japan)

On going posts on doomsday/meltdown (may occur) trading via riding a HFT or 'flash' crash ala the Greece Crisis that spiked the flash crash on May the 6th 2010

NKS: Takefuji Corp will hold Tuesday an emergency board meeting where it will decide to file for protection from creditors. The consumer credit giant's finances have been hit hard by mounting refunds for interest overpaid by borrowers. Takefuji is also expected to delist from bourses in Tokyo and London. Liabilities on the company's books exceeded Y400bn ($4.7b) as of June 30. But up to 2 million customers could still come forward with requests for interest payment refunds. Should all of them do so, Takefuji's liabilities could reach Y2.5trln ($29.7bln)

Possible fear contagion on interbank/libor spreads

from Nikkei

disclaimer: MEC Research - trade at your own risk

The AUD is becoming extremely overbought. (update 3)

Export giant Brazil has now made the assertion that a 'currency war' is now occurring. So at this point we have now the commodity producing countries beginning to devalue their currencies in tandem. Except for Australia, as the Australian perennial bull central bank (RBA) has reignited hopes (for bank FX traders) that a interest rate cycle is about to begin (yes begin!).

Although if buyers of cheaper put positions are hedging against overstretched long positions (institutional investors) to be cut, they maybe in luck. Most traders even economists brushed over the July 2010 terms of trade that showed exports flattening out and imports dropping, in other words the Australian economy is slowing. The RBA rhetorical came from their bizarre mantra that on low export volumes but higher costs of exports (raw material) to China, the Australian economy may be able to sidestep a global slow down going into 2011. But the RBA/Australian government is now faced with commodity producing countries selling their currencies in an effort to devalue (FX protectionism). As discussed in Market is overpricing risk (update 7) - Dow volume diminishing, traders are underestimating massive goverment intervention (FX) Colombia was the first after Japan's intervention. Now we have Argentina and Brazil following suit

This means that competitiveness is dropping on pricing as a deflation in currencies make the buyers, of your exports, more attractive.

So we have consolidation (5 trading days) after touching the resistance of 0.96 (AUD). The market is awaiting the October 5th RBA decision on interest rates. Volumes have thinned out as trades have tightened in expectation for a rate hike at 0.25% this may have already been priced in 0.95 0.96 range.

The beauty of all this is that if the South America export powerhouses devalue currencies and compete to keep China's interest, the Europe Zone debt markets implode into the last quarter of 2010. A major sell signal will light up on a possible reassessment of holding off tightening the AUD cash rate.

Inches away from an Asian/US trade war (update 5) - Tarrifs on

"Sentiment remains bullish in the domestic market which has pushed up the Hang Seng Index up by around 250 points so far this morning. However, on the interest rate front, a cautious approach prevails as China has issued a final ruling to collect anti-dumping tariffs over US chicken products ranging from 50.3% to 105.4%. The ruling comes two days after the US House Ways and Means Committee backed a bill to allow US companies to seek tariffs on Chinese imports if China doesn’t allow the Yuan to appreciate to an appropriate value. The US House will vote on the bill Wednesday. Traders are worried about a full blown trade war. Ahead of the National Day Golden Week in China starting this Friday, players are hesitated to open new positions"

Watch high yield positions

Time to 'short' Australia's housing bubble (update 2). Australian liquidity crunch?

If Australia's Reserve Bank sends (a bizarrely timed interest rate cycle) the AUD close to parity (against the US) not only will Australia lose it's competitiveness with exports (South America export countries begin a FX devaluation cycle), it may attempt to stave off a liquidity crunch (higher AUD will send hot inflows into the economy). A double edge sword that the RBA is walking on (attempt at building up a liquidity backstop with AUD moneyflows), which will end up sending the overinflated and highly in-debited housing market into a mega bust.

"AUSTRALIAN banks' reliance on overseas funding and the high level of household debt loom as ''significant'' economic risks, Treasury has told the government in a briefing.

The nation's top economic advisers yesterday made public the incoming government brief known as the ''Red Book'' after a flurry of freedom-of-information requests."

CMBS credit cruch 2010/2011

As discussed in (September 2 2010) Blockbuster Video Bankruptcy filing for Chapter 11. The Start of the Commercial Mortgage Backed Security write-downs?

The long dormant and sleeping credit crisis, being the commercial mortgage backed security markets, may be awakening. At this point it appears the CMBS market stabilized and was nicely kept off bank balance sheets. This could be changing and we may be in for a wave of CMBS writedowns.

A kinda running joke that two cities 10,000 miles apart from each other both have vacant office space, that has been vacant since 2008. Meaning? CMBS looses (substantial) happening around about now

WSJ 23 Sept 2010

"Standard & Poor's Ratings Services downgraded $1.71 billion of collateralized debt obligations of commercial mortgage-backed securities because of deteriorating credit and cuts to the underlying securities.

S&P has lowered ratings on hundreds of billions of dollars in mortgage-backed securities and CDOs in the past year as estimates for the amount of losses in them continue to rise.

On Thursday, the ratings company cut 22 tranches from four U.S. CDO of CMBS transactions and removed them from watch for further downgrade. It affirmed 12 tranches from three deals and removed five of those from watch for downgrade. Delinquencies on commercial mortgages continue to rise even as home-loan delinquencies have plateaued for now.

CDOs, which use such sliced-and-diced assets as subprime-mortgage bonds to create customized securities offering various levels of risk, were at the heart of steep write-downs at big banks and brokerage firms"

European banking system looking screwed again re: Ireland/EU banks (update 3). Bank default on the cards

Either a bank default or bank bailout re: Anglo Irish Bank. Ireland will not be able to bail out the bank at the costs of it's insanely high budget deficit, very shaky sovereign debt sales (ref: high yields on the 2yr/ CDS spreads blow out) now crunched GDP.

All and all as the market winding back risk, a EU zone bank bailout of AIB will have a contagion effect on the rest of the EU banking system, especially Spanish banks that are extremely reliant on ECB backstops and investor confidence. Trichet (ECB governor) house of cards...is collapsing.

from IT.com 23rd Sept 2010

"A DEFAULT on Government-guaranteed debt at State-owned Anglo Irish Bank would lead to a funding crisis for the State and the bank system, former attorney general and European commissioner for Ireland Peter Sutherland will say in a speech in Dublin today.

Mr Sutherland, chairman of Goldman Sachs Ireland, will tell the Institute of Directors’ autumn lunch that the maximum saving the Government can make on sharing Anglo’s rising losses with the holders of senior and subordinated debt would be €5.1 billion.

He will argue that whatever the final cost of Anglo, only a small proportion would be saved by a default, and that such a move for a small country would “surely precipitate a funding crisis both for the sovereign and the banking system as a whole”, adding that the collateral damage of such a decision would be “very serious”.

Criticising the Financial Times for repeated calls on the Government to stop protecting bondholders against bank losses, he will say the newspaper’s proposal is “flawed in theory and extremely damaging in practice”.

Sounds paniky.

Huge wave of risk aversion about to hit markets

The market may be underestimating Japanese FX intervention, as it's about to become more prolific. This can be seem via the now very concerning tensions between China and Japan as discussed in Inches away from an Asian trade war (update 4) - first shots fired China/Japan embargo (rare earths), if China begins to create embargo's or sanctions on Japan; Japan's only retaliation is massive YEN depreciation. This would attempt to keep their (Japan's) market competitive over China. In turn of course China will halt all YUAN appreciation against the US dollar. Asia/trade war/devaluation crisis would be one part of risk aversion, the other is Europe.

Irish CDS (credit default swaps) have blown out re WSJ article 23rd Sept 2010 :

LONDON (MarketWatch) -- The cost of insuring peripheral euro-zone government debt against default continued to rise Thursday, with the spread on Ireland credit default swaps, or CDS, widening further into record territory. The spread on five-year Irish sovereign CDS widened to 490.8 basis points from 464.2 on Wednesday, according to data provider CMA. That means it would cost $490,800 a year to insure $10 million of Irish debt against default for five years, up from $464,200. The spread on Portuguese CDS widened to 419 from 391.2, CMA said, while Italy widened to 204.8 from 195.3. The Spain five-year CDS spread was at 242.5 basis points versus 234.3 on Wednesday, while Greece widened to 828.6 from 813.6.

Any doubts on bond insurance is over coupon payments paid on later date/s and whether the bond seller will be able to honor those payments. You can blame the European Central Bank for allowing the indebted PIIGS yields on sovereign debt to blow out at high percentage levels. The ECB/EU and IMF have all encouraged investors to buy in at high yield levels; an unwritten belief that the ECB will backstop any bond purchases. Of course in free markets if yields are higher means risk is higher, thus the CDS market is adjusting accordingly, which puts further pressure on funding via the capital markets. Any further costs to insure 'junk' sovereign debt is passed on, usually with interest rates on lent capital (other banks), the costs to provide credit and the risks will increase (good to watch libor/interbank spreads). Therefore banks will be reluctant to provide credit to the consumer.

Inches away from an Asian trade war (update 4) - first shots fired China/Japan embargo (rare earths)

If confirmed it would be the start of a full scale trade war that will draw the US in (re: tariffs on most Chinese imported goods pre: November 2010 elections). The smoking gun is the recent, and disturbing, embargo on rare earth shipments to Japan. Of course this will escalate the geo political tensions between China and Japan as discussed in Major war/conflict cycle commencing? (update 5) Japan/China

This will also be an excuse to not revalue the Yuan higher and the Yen will weaken further, as Japan will go all out to slam the Yen down further. The whole devaluation war (currency protectionism) will cause Asia to devalue all their own currencies. The USD will be bid, with the Fed putting through a second qualitative easing but without US government fiscal stimulus - the USD may not fall as hard as assumed on QEII). But rather a trade war with China, namely high taxed imported steel will be the US government response on a slowing economy.

NYT Sept 23rd 2010

HONG KONG — Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has placed a trade embargo on all exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.

*Didymium oxide is a rare earth mineral used in delicate electronics.
Related

*An engine of a Toyota Prius. Each Prius uses at least two pounds of rare earth elements in its various parts.

Chinese customs officials are halting all shipments to Japan of so-called rare earth elements, industry officials said on Thursday morning.

On Tuesday, Prime Minister Wen Jiabao personally called for Japan’s release of the captain, who was detained after his vessel collided with two Japanese coast guard vessels about 40 minutes apart as he tried to fish in waters controlled by Japan but long claimed by China. Mr. Wen threatened unspecified further actions if Japan did not comply.

A Chinese commerce ministry official declined on Thursday to discuss the country’s trade policy on rare earths, saying only that Mr. Wen’s comments remained the Chinese government’s position.

China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.

Dudley Kingsnorth, the executive director of the Industrial Minerals Company of Australia, a rare earth consulting company, said that several executives in the rare earths industry had already expressed worries to him about the export ban. The executives have been told that the initial ban lasts through the end of the month, and that the Chinese government will reassess then whether to extend the ban if the fishing captain still has not been released, Mr. Kingsnorth said.

European banking system looking screwed again re: Ireland/EU banks (update 3)

Irish banks with no external funding keeping them alive (except for the European Central Bank pouring liquidity into Ireland), a default option/restructure option on main Irish banks is inevitable; the country may face default on sovereign debt once yields begin to climb pass the 4.5% on 2yr and 10yr bonds. Coupons payments of debt will be delayed as budget constraints and failed austerity measures backfire.

from WSJ 23rd Sept 2010

"Brian Lenihan, the 51-year-old finance minister who has so far guided Ireland through a financial minefield, is under pressure once more as Ireland returns to the center of Europe's debt crisis. This week, even as the country successfully raised funds from the capital markets, investors fretted about Ireland's cost of bailing out troubled Anglo Irish Bank Corp. On Wednesday, the cost of insuring the country's sovereign bonds against default hit a record high.

"All the while, Mr. Lenihan has been fighting his own battle against pancreatic cancer. Since discovering his disease in December 2009, he has undergone chemotherapy and radiation treatments that have so far allowed him to stay at the forefront of one of Europe's most painful property busts. He says doctors have stabilized his cancer for now.

That will let him focus on the heart of Ireland's latest woes: Anglo Irish, which earned the nickname "builders' bank" for its reckless lending to property developers during Ireland's rollicking economic boom.

The finance minister has already pumped capital into the tottering lender, Ireland's third-biggest. Last year, the government seized the bank and started shifting its souring loans to a government-run "bad" bank at the taxpayers' expense.

Even so, Anglo Irish and some other Ireland-based banks remain shut out of capital markets, forcing them to rely on emergency funding from the European Central Bank. Ireland-based banks got €95 billion ($125 billion) of ECB cash in August, according to research by Royal Bank of Scotland Group PLC"

Major war/conflict cycle commencing? (update 5) Japan/China

From: NYT 22 Sept 2010

"Mr. Wen’s comments were the first by a senior Chinese official in what is rapidly becoming the most serious territorial dispute China has faced in a decade. The captain and crew were seized earlier this month by Japanese naval vessels, which claimed that the fishing boat rammed them near several uninhabited islands controlled by Japan. The boat and crew were quickly released, but the captain faces charges of obstructing officials from performing their duty and remains in Japanese custody.

China is incensed that Japan would apply its laws to Chinese nationals and argues that the issue is one for diplomacy, not the legal system. Known as Senkaku in Japanese or Diaoyu in Chinese, the islands have been in dispute for decades, but Japan has mostly turned back Chinese vessels that approach too closely.

Mr. Wen made his comments Tuesday night to members of the Chinese-American community in New York, where he is attending a United Nations meeting. The comments were carried Wednesday on the Web site of the Chinese Foreign Ministry.

“This is totally illegal, unreasonable and has already caused much suffering to the family of the captain,” Mr. Wen was quoted as saying. “If Japan clings to its course, China will take further action.”

It is highly possible that China will send warships or prepare for military exercises near the disputed area before or after the release of the Chinese fishing boat captain held by the Japanese.

Area maps of the disputed islands:



Note natural gas reserves within the disputed area

Commodity producing countries under pressure (political/economic - New Zealand) - GDP flat (update 7)

Economists again are over-stretching assumptions that commodity producing countries are somewhat shielded via China demand for commodities in 2010. This was the fatal error made in 2008 with the decoupling argument (US recession). What we are seeing is China will struggle to maintain domestic consumption, thus it will continues to devalue it's Yuan (CNY), which indicates that it's export markets are petering out on US and Europe weakness. If the US Federal Reserve does decide to embark on more asset buying, via MBS (mortgage back securities) which then means that more liquidity will go into the banking system (to be sucked up by the banks), which then also means the US dollar will weaken (sans risk aversion/possible trade war). The Chinese WILL not devalue or bother trying to prove to the US it is strengthening it's currency. So, if a global slowdown is now occurring, or double dip, and a trade war (protectionism) is about to take place. This will most certainly effect commodity producing countries.

Market consensus had a 0.8% growth of New Zealand GDP for the June quarter 2010, q/q now @ 0.2 down from (q1) 0.5

FX street

Major war/conflict cycle commencing? (update 4) Japan/China

Still on, refer:

from AFP 22nd (Wed) September 2010:

BEIJING — Chinese Premier Wen Jiabao urged Japan to release a boat captain "immediately and unconditionally," state media said Wednesday, after his arrest in disputed waters set off a diplomatic crisis.

"Otherwise, China will take further measures," Wen was quoted as saying by the official Xinhua news agency in New York, where he is due to take part in UN meetings and talks with state leaders including US President Barack Obama.

The dispute erupted when a Chinese fishing trawler and two Japanese coastguard vessels collided on September 7 near disputed islands that lie in rich fishing grounds and near possible oil and gas fields.

Market is overpricing risk (update 8) - Volume (less), Algo (HFT) markets forming; stocks, risk trades

High risk markets forming across the board with algorithmic trading (computer) being almost the only market support. High frequency trades on low volume from stocks through to risk currencies. Advisable to sit on the sidelines or buy put protection (out of the money) on overbought risk plays.

HFT has a knack to cover up volatility as overbidding smooths out prices. But volume indicators show that thin volume trades are increasing in ferocity (most notable is the AUD trade).

Any panic sell on geopolitical tensions/trade war escalation or bond markets (missed coupon payments on high yield sovereign held debt/bonds) will be dramatic and swift

refer: Dow (self explanatory)



AUD (self explanatory)

The AUD is becoming extremely overbought. (update 2)

The beauty of HFT trading and large directional moves (panic) guarantees a 'flash crash' as the outcome. Of course over bidding by hedge funds/investments banks and Asian retail players have driven the AUD up into a hyper fast, overbought way.

Out of the money put spreads, with low ATR, low volatilities = Cheap. Market cycle 101 that traders (yes machines too) often forget; everything corrects...on the downside.

Commodity producing countries under pressure (political/economic - Australia) - Australia's exports pressured/RBA tightning. (update 6)

We have a madman at the helm who seems hellbent on cooling the Australian economy that he believes has been inflated by the mining boom (which the rest of Australia doesn't see).

Of course what has created inflation in Australia is the Australian mega housing bubble, not mining (shipping rates are still low re: Iron Ore). Maintain a tightening bias on top of real interest rates (which are going through the roof) on credit and the Aussie bust will be ensued (small/medium size businesses sans mining will be decimated). Not by a China slow down, but by the Reserve Bank of Australia.

Good to watch is Government stats prior (September 30th/October 5th) to central bank meetings. May fudge (true figures) to hold off a tightening cycle.

Major war/conflict cycle commencing? (update 3) Japan/China

Geopolitical tensions (which also start from economic tensions) went up a notch between China/Japan. The economic/financial tensions have bee followed in Asia Trade War posts

from Bloomberg 20th Sept 2010

"Diplomatic ties between the world’s second and third-biggest economies soured as China escalated a dispute over Japan’s extended detention of a fishing boat captain for a collision in disputed waters.

China yesterday severed senior-level government contacts with Japan, halting aviation talks and suspending a meeting on coal because of the incident. Foreign Ministry spokesman Ma Zhaoxu pledged “strong countermeasures” if Japan failed to release the captain. Japan’s government hasn’t been informed of the measures, a spokesman said today.

“Any so-called judicial proceedings the Japanese side takes against the Chinese captain are illegal and invalid,” Ma said in yesterday’s statement. “Japan will have to bear all of the consequences.”

The dispute has sent relations to their worst point since 2005, when thousands of Chinese protested Japanese textbooks that downplayed wartime atrocities, at a time when economic ties are strengthening. Nissan Motor Co. Chief Executive Officer Carlos Ghosn, today said in the city of Zhengzhou that China accounts for 23 percent of sales for the Japanese automaker.

Zhu Feng, a professor of international relations at Peking University, said that while the quarrel is “very serious,” both governments will keep it from escalating into a conflict involving military force or economic sanctions."

European banking system looking screwed again re: Ireland sovereign default a near certainty (update 2)

Ireland is close to a sovereign default. IMF on standby. Should send a suitable size banking crisis across Europe, with the ECB/IMF having no choice but to allow a restructure of sovereign held debt.

Going to be bad. A Lehman (2008) like event. Yield chasing on 'junk' bonds, FX by institutional/s piling in a lot of risk will cut very hard. To think the Scandinavian 'darlings' (Sweden) have bought a shit load of Greek high yielding 'crap'.

Ireland's CDS's (note spike in September 2010)


Irish Bond yields 2yr

Inches away from an Asian trade war (update 3)

Recent gold buying is a very good indicator that the market is hedging risk aversion at the same time with risk 'on'

Despite Japan's YEN intervention, which should have a larger reverberation that should be felt around about now (chaos theory: y'know butterfly effect, cause and effect, fuck with something[that shouldn't be fucked) and it ends up fucking worst...you get the drift), the global trade war should be ready to start, which Asia baiting and US shooting. A protectionist/trade war may end up moving into geopolitical tensions at some-point. Regardless the consequences for a trade war with Asia will decimate valuations and insurance spreads should widen (CDS's).

It's all a joke refer:

DOW JONES NEWSWIRES SHANGHAI (Dow Jones)--The yuan ended its six-day rally against the U.S. dollar on Friday, following a less aggressive effort by China's central bank to guide its currency higher after the completion of the closely watched U.S. Congressional hearings on Beijing's exchange-rate policy. Traders and analysts said Beijing may have little desire to tolerate much more yuan appreciation in the near term given the currency's 1.0% gain against the dollar in the previous six trading sessions, even though international pressure for a higher yuan will likely stay strong. U.S. Treasury Secretary Timothy Geithner's apparent effort to stake out a middle ground during his testimony at the Congressional hearing overnight also took some pressure off the yuan, traders said. At 0515 GMT, the dollar was at CNY6.7265 on the over-the-counter market, up from CNY6.7248 at Thursday's close. In the offshore market, one-year dollar-yuan nondeliverable forwards slipped slightly to 6.6340/6.6380 from 6.6390/6.6430 late Thursday. The yuan's decline came after the People's Bank of China set the dollar/yuan central parity at 6.7172, a fresh record low for the daily reference rate but down only a touch from 6.7181 Thursday. "The central parity was certainly higher than expected and so demand for the dollar rose this morning," said a Shanghai-based trader at an Asian bank. "Our take is that the dollar-yuan may be nearing a significant rebound," he added. "The U.S. Congressional hearing is over. And we don't think the yuan will continue to appreciate sharply in the near term." Facing hostile Congressional questioning, Geithner pressed China to significantly boost the value of its currency but also tried to fend off lawmakers who want the U.S. to take harsher action against Beijing's policies, indicating the Obama administration remains reluctant to formally label China a currency manipulator under U.S. law. While the U.S. feels the yuan is "significantly undervalued," a formal designation would "not be a particularly effective tool" for achieving U.S. goals, he said. "The comment yesterday was actually quite balanced," said a foreign-exchange strategist at a U.S. bank in Singapore. "I think it's the right way to engage China, because the Obama administration is quite aware that if you put too much pressure on them it will only become counter-productive." But he said China is unlikely to maintain the recent pace of yuan appreciation, adding his bank has left its prediction that the dollar could fall to CNY6.60 by year-end unchanged. Donald Straszheim, head of China research at Los Angeles-based ISI Group, said China doesn't believe its economic situation warrants much yuan appreciation. "Beijing officialdom is reasonably comfortable with the growth and inflation outlook domestically now," Straszheim said. "So moving the currency for its short-term effect on economic activity within China is not the immediate motivation." Analysts said the possibility remains for the U.S. Congress to take punitive action against China on its currency policy in coming weeks. A series of high-level international meetings later this year could still put the spotlight on the yuan valuation issue, among them the UN General Assembly in New York next week--when China Premier Wen Jiabao plans to meet U.S. President Barack Obama, and the Group of 20 leading world economies summit meeting in November.

Bank of Japan/US investment bank have gone insane - AUD meltup hits 0.94 knockout/s (update 2)

Some crazed US investment bank is trying to knock out a binary 'call' option @0.9475 expires end month. Massive payout at 25 million USD!

Bank must be hard up for cash.

Also over bidding on the GBP.

Sounds like panic buying to knock calls out. Which sounds like their accounts are looking dry.

Bank of Japan have gone insane - AUD meltup hits 0.94 knockout (update 1)

... with over bidding support from US investment banks ('dumb' smart money). Watch your metal spot rates UK market open on Friday 17th September 2010...

hope you fucks get hammered on long/s getting cut. Iron Ore spots down re: reuters:

 "Deals in the physical market had been few and far between
and below current offers, traders said, as Chinese steel mills
wait for further price declines before considering purchases.

 The weakness in the spot market continued to spill over to
forward swaps, with the October contract SGXIOc2 cleared by
the Singapore Exchange easing $0.62 to $128.38 a tonne on
Thursday.

 Contract prices for the fourth quarter are down by up to 13
percent because of the decline in iron ore spot prices in the
previous three months, the first time global miners cut prices
since moving to a quarterly pricing system in April from a
decades-old annual scheme.

 The upcoming holidays in China had also helped limit
activity, traders said. Chinese markets are closed on Sept.
22-24 for the Mid-Autumn Festival and on Oct. 1-7 for the
National Day holiday.

 Slower cargoes dragged down the Baltic Exchange's main sea
freight index .BADI to its lowest in two weeks on Thursday,
falling another 3.6 percent for a fourth straight day of
losses. [ID:nLDE68F1R4]

 The index tracks the cost of shipping dry commodities like
iron ore and coal.

 IRON ORE FORWARD SWAPS (U.S. dollars per tonne):

 Singapore Exchange                Intercontinental Exchange

 September 2010     135.63                   131.57

 October 2010       128.38                   128.52

 November 2010      127.13                   126.77

 December 2010      126.13                   125.78

 January 2011       124.75                   125.56

 February 2011      124.63                   125.44

 March 2011         124.69                   125.50

 April 2011         123.44                   122.48

 May 2011           123.31                   122.35

 June 2011          123.31                   122.35

 July 2011          122.56                   121.61

 August 2011        122.31                   121.36

 September 2011     122.08                   121.13

 October 2011       121.50                   120.56

 November 2011      121.33                   120.39

 December 2011      121.00                   120.06

 January 2012       117.33                   119.54

 February 2012      117.00                   119.21

 March 2012         116.83                   119.03

 April 2012         116.75                   118.95

 May 2012           116.67                   118.87

 June 2012          116.17                   118.36

 July 2012          116.08                   118.70

 August 2012        116.00                   118.62"

Bank of Japan have gone insane - AUD meltup hits 0.94 knockout

The Japanese are terrible investors. Over leveraged firms/retail traders trading on margin.
With a shrinking population. The whole country is facing bankrupt alley.

BoJ is buying huge amounts of AUD (reserve holdings) with major kockouts at 0.94 is like giving money away to the market.

C'mon S&P downgrade the idiots.

Markets consolidating, tight ranges, thinning volume

If you are trying to see the end, say the end times in stocks/markets. The hard part is trying to pinpoint the day/month/yr/timing. What is infuriating for doomers, or people that trade on doom it is a tease on a possible major sell. With HFT stabilizing stocks into range trading markets, the overall market indicators are showing trading ranges are narrowing, as bid/offers get tighter and tighter.

Central Banks are stabilizing bonds/FX/Sovereigns, which effects CDS markets, FX markets, bond markets and stocks, with 'academically clueless' CB bankers buying distressed crap in a frenetic crazy way. All markets are now trading sideways (range trade)

Stocks101: bid/offer tightens, volume building up a breakout on the upside is imminent.

Instead what we have is bid/offer tightening but volume dissipating which means a breakout on the downside is imminent

Dow/S&P500 note now range trade with shrinking volume:



One of the best risk 'barometer' currencies the Canadian dollar, now sitting in a range trade

If you are margin trading and holding puts, you would be in pain. Even if you have a tight call/put spread to make cash here you would need to have a leverage over 50% (1:50)

A major sell is there, even more major if the HFT's cuts longs to shorts in a 10min panic. Major sell being 400 to 500 + point drop on the dow.

When? An 'open ended imminent' say in a 3mth period.

Central bank intervention and stabilization is the equivalent of trying to hold back the ocean.

It's gonna break.

Inches away from an Asian trade war (update 2)

Japan rumored to have $588billion intervention 'ammo' and they have only spent (only) $23billion.

Let's see if China can match this with YEN buying, or selling and (if Timothy US Treasury officially begins the trade war) buys USD and drops the CNY.

Watch all commodity crosses and commodity futures for major price drops. Commodity markets may already be pricing a trade war.

Hedge fund paradise on short positions.

Market is overpricing risk (update 7) - Dow volume diminishing, traders are underestimating massive goverment intervention (FX)

What we are witnessing now are massive distortion/s in the markets. Reverberating from Japan's USD buying and YEN (global) selling, with the rest of Asia getting itchy trigger fingers. A trader (certain hedge fund) wakes up on Thursday morning, says in a note (wires) that Japan intervention hasn't worked in the past, won't work now. Yes traders had shorts on the USD cross against the YEN, were anticipating a 0.83 USD breach. But selective memories are deadly ones, do they remember when the EU pumped a Trillion plus to protect the EUR? Hedge funds got slaughtered when the EU/ECB drew a line on 1.20 (EUR); check your charts, the market ever since has been unable to test the 1.20 support. The market is up against a massive goverment/central bank intervention program, yes it will fail and fail spectacularly (on a global scale). But in the mean time the market will run with the central bank intervention; as in shorting YEN, buying USD. As Asia will eventually follow suit with Japan in 'total' currency devaluation, like a drug they won't stop. Of course this will lead to a full scale trade wear with the US.

This will cause the USD to be bid as risk aversion hits hard, tariffs will take place on ALL Asian imports (to US). The US will attempt to sweat Asia to try and revalue exports to US liking. The whole thing will end in tears. So it would be foolish to assume that Japans intervention is a one off failure, commodity producing nations will also start to devalue currencies (as Iron ore/commodity imports to Asia will become more expensive), such as Colombia (already started to devalue the PESO), Argentina and Brazil.

The market is still overpricing risk on stocks and certain risk buys like industrial commodities, commodity currencies. A concerning factor would be the range trading of the Dow and S&P 500; mixed with thinning volume, with a marked up distribution, means (if not just retail investors) most buyers are overpricing stocks on smaller capital re: volume.

A 'flash crash' style sell cannot be ruled out near term

refer to declining volume buys on the Dow:

Note the August 31st low @ 9915.73 volume @ 2,917,990,000 (on close price 10,014.72). Current close (15th Sept 2010) @ 10,572.73, volume @ 3,369,840,000, down from the previous volume @ 4,521,050,000 (14th Sept 2010 close @10,526.49)

(Any up-tick on buys on smaller volume = a coming sell off. Could be major, depending on the market uncertainty and distortion reverberating from Asia/US/Trade war/FX de-evaluation.)

Sep 15, 2010	10,526.42	10,609.21	10,453.15	10,572.73	3,369,840,000	10,572.73
Sep 14, 2010	10,544.81	10,622.69	10,460.34	10,526.49	4,521,050,000	10,526.49
Sep 13, 2010	10,458.60	10,605.73	10,458.45	10,544.13	4,521,050,000	10,544.13
Sep 10, 2010	10,415.01	10,502.80	10,376.34	10,462.77	3,061,160,000	10,462.77
Sep 9, 2010	10,388.22	10,515.86	10,359.23	10,415.24	3,387,770,000	10,415.24
Sep 8, 2010	10,338.57	10,460.50	10,318.93	10,387.01	3,224,640,000	10,387.01
Sep 7, 2010	10,446.80	10,448.99	10,304.44	10,340.69	3,107,380,000	10,340.69
Sep 3, 2010	10,321.92	10,484.71	10,321.92	10,447.93	3,534,500,000	10,447.93
Sep 2, 2010	10,270.08	10,350.98	10,211.80	10,320.10	3,704,210,000	10,320.10
Sep 1, 2010	10,016.01	10,305.87	10,016.01	10,269.47	4,396,880,000	10,269.47
Aug 31, 2010	10,006.42	10,101.53	9,915.73	10,014.72	4,038,770,000	10,014.72
Aug 30, 2010	10,145.58	10,170.10	10,005.56	10,009.73	2,917,990,000	10,009.73

Inches away from an Asian trade war (update 1)

Japan intervenes in FX market first time in 6yrs buying 2 to 6 billion + of USD (buying 10million USD per lot). Don't worry China will be hot on the heels buying USD too and if needed buying YEN.

It's getting hot. Asia will start devaluing it's currencies...the war has begun.

Anyone shorting the USD whilst Asia buys (why? Asia FX reserves are a lot of ammo) is gonna get destroyed.

USD is bid

*personally with market intervention (gov/central bank) critique aside. Japan's tactic was a smart one, made the market sweat on possible intervention (for weeks); with the USD weakened in the last 5days. What better way to 'freak' the market. Shorts will cover, USD will be bid and the BoJ may rack up a profit...but then there is China with huge YEN reserves.

Shit is getting interesting.

The AUD is becoming extremely overbought. (update 1)

Huge long position/s set on the AUD held mostly by banks. Despite the fact the AUD now is overbought and expensive with *puts on downside protection being cheaper. Price Channels show that the AUD is now very overstretched. The rally now looks like topping out.

*Market rumour that there are 'large' Double No-Touch options @ 0.95 and 0.85. Probably hedge funds. Banks will just cut a massive long.

And you can't beat this double top forming (chart below). With extreme risk on/off every 24hrs. Any panic sell will be significant.

refer:

Inches away from an Asian trade war

If Japan intervenes in YEN devaluation (under Ichiro Ozawa if able to win support to become PM, replacing current PM Naoto Kan). Asia will enter a trade war with it's self and also the US (re:China)

Of course central bank intervention in the market usually incurs losses (re: Swiss National Bank propping the EUR in May/June 2010)

Still Asian FX reserves took a beating in May/June 2010 when risk aversion caused the Korean WON and YEN to surge. If Japan goes mad and starts buying USD, China will also buy YEN and USD. South Korea, which is nursing losses from their last intervention, may just sit tight, or cut rates. That happens (rate cuts), Asia will go into a devaluation trade war, which the US will be drawn into.


"By David Roman
A Dow Jones Newswires Column

SINGAPORE (Dow Jones)--A Japanese intervention in forex currency markets might well fail to weaken the yen, but should have a near-term impact on other Asian currencies.
Japanese authorities have ratcheted up their rhetoric against a strong yen as the currency rises steadily, hitting a 15-year high against the dollar Tuesday.

Some analysts say Japanese intervention would embolden other Asian central banks, many of which have intervened heavily so far this year, to increase their own dollar purchases to protect their exporters. Likely candidates for a quick correction under that scenario would be the Taiwan dollar, Korean won and Singapore dollar, all currencies closely watched by their central banks.

Asian central banks "would be more likely to intervene" after a potential Japanese move, as it "would make them more comfortable with intervention," said Sean Callow, a forex strategist with Westpac. "All Asian central banks keep an eye on what the others are doing; they haven't been shy about intervening."

Japanese intervention might become likelier if Ichiro Ozawa, a kingmaker in the ruling Democratic Party of Japan, wins an internal party election Tuesday to replace Naoto Kan as party leader and prime minister. Ozawa has espoused a more activist line to curb the yen and protect Japanese exporters.

That could become a matter of concern for Japan's competitors, including South Korea and Taiwan, which have taken market share from Japanese exporters in fields such as automobiles and electronics.
Over the past two years, as the yen rose 19% against the U.S. dollar, the Korean won has lost 5% against the greenback and the Taiwan dollar has been flat. That has helped those economies -- which grew more than 7% on-year in the second quarter, compared with 1.5% growth in Japan -- to recover faster from the global slowdown.

Westpac's Callow said China's response to any Japanese intervention also would be key, as the Chinese yuan has become an increasingly relevant benchmark for Asian currencies. With Japan hectoring China to intervene less to weaken the yuan, China could react to Japanese intervention by slowing or even reversing the pace of yuan appreciation.

Singapore, where the local dollar rose to an all-time high against the greenback earlier this week, is another candidate to mirror any Japanese intervention. A person familiar with the Monetary Authority of Singapore's thinking said the central bank would be more likely to step in if Tokyo does.

On the other hand, Indonesia could find it hard to increase its intervention. As of last month Bank Indonesia's forex reserves stood at $81.3 billion, up 36% on the year -- among the world's largest gains -- as a result of sustained dollar purchasing in forex markets.
Bank Indonesia has expressed reservations about the quick buildup and announced several measures to increase monitoring of investment inflows in recent months, looking to find other ways to lessen pressure on the rupiah.

That's because Indonesia's high policy rates, now at 6.5%, make it more expensive to keep dollar reserves there than in other countries, as commercial banks must be paid interest in local currency in exchange for keeping dollars with the central bank."

The PBoC are....(update 3)

USD/CNY hits @ 6.7470 in early trading, after PBoC sets central parity at record low

Then maniacal USD buying shortly after open...yes by the PBoC . Now @ 6.7505 vs 6.7618 yesterday.

C'mon Timothy Geithner grow some fucking balls...China is messin' with the rate again. Just end the cock tease and call China a FX manipulator.

Commodity producing countries under pressure (political/economic - Argentina) - inflation bust scenario looking more certain (update 5)

So we have Europe and the US in a deflation style trap (until both economies are allowed to properly de-leverage) with sprinkles of inflation around the edges, the US and EU banking system is artificially being pumped and supported by the government sector and their incumbent central banks. The question is why didn't Europe and the US fall into broad consumer inflation by the trillions of dollars spent to attempt to stimulate both economies? The answer lies with the fact that the banks are gobbling up excess liquidity at an extreme rate. This indicates that both the EU and US banking system is still insolvent. The private sector has shrunk, with Germany revving exports, but still has a troubling banking system. But domestic consumption has not revived to inflated levels. The US export sector is poor and will remain that way, as China is still undermining the trade gap between the US and China via it's pitiful appreciation of the Yuan. So growth via the US and Europe is negligible, Asia has ramped up stimulus programs and inflated property markets from Taiwan to South Korea, Singapore, Indonesia and of course China. The Asia growth story is fulled by commodity nations, that are now running par inflation rates with Asia, as we know China's inflation will blow out sooner than later.

What appears more likely on the scenario, is even if the US doesn't statistically fall into a double dip recession (but just stays adrift in an economic dead zone), it will be the commodity based nations, via China that will lead to the global bust, thus global GDP will be stripped down. China will initiate a bust scenario for the world, even if China or a portion of China crashes, commodity producing countries, that are still running large fiscal deficits and rely heavily of debt markets to secure funding. Will be hit hard. As all commodity producing countries are suffering inflation. The biggest denier in the inflation camp (commodity producing country) is Argentina.

from Bloomberg May 2010 (older article for 2010, but still relevant re: the fudged China data)

"Economists, including former central bank President Alfonso Prat-Gay, say annual price increases are more than 25 percent, which would make Argentina’s inflation rate the second highest in the world behind Venezuela. Both countries would take the inflation crown from Zimbabwe, where prices climbed 500 billion percent in 2008, according to the International Monetary Fund, before slowing last year. Argentina’s statistics agency said prices rose 9.7 percent in March from a year earlier.

Quickening inflation in South America’s second-biggest economy isn’t a concern only for the poor. Doubts about the government’s data mean investors demand higher yields on Argentine bonds, said Edwin Gutierrez, who manages $5 billion in emerging-market debt at Aberdeen Management Plc in London. The current yields on Argentine debt of about 12 percent are unsustainable, Prat-Gay said.

“Anyone who’s playing Argentina knows that they’ve been fudging the data,” Gutierrez said in a May 5 interview.

Economy Minister Amado Boudou said the government’s inflation data accurately reflect cost increases for the poor. Complaints that inflation is being underreported come from wealthier Argentines and investors who hold debt that yields more when inflation quickens, he said in an April 14 interview.

Polls show Argentines expect prices to surge 30 percent over the next year. The government will publish April’s inflation data May 12.

Extra Yield

The extra yield investors demand to buy Argentine bonds over U.S. Treasuries is 696 basis points, or 6.96 percentage points, according to JPMorgan Chase & Co. The so-called spread for Iraqi bonds is 3.88 percentage points. The Dominican Republic, whose $46 billion economy is barely one-tenth of Argentina’s, sold $750 million of bonds last month yielding 7.5 percent. Argentina’s dollar bonds due in 2015, by comparison, yield more than 12.5 percent.

Higher bond yields make it more expensive for President Cristina Fernandez de Kirchner’s government to build roads, pay for welfare programs and support subsidies for buses and trains."

Risk is brutally 'on' (with volatility)

Basel III compromise for banks makes the next 8 yrs a mega risk bonanza for trades and leverage in the market. Even after goverment/s (taxpayers) propped up, guaranteed and bailout banks thus keeping risk taking buoyant after 2008 asset market/s collapse.

That 1 to 5 yr time frame 'mega' bust is looking even more mega...as in bust baby.

The PBoC are....(update 2)

The Peoples Bank of China are still fucking with the market with a super low FX fix @ 6.75 against the USD.

Nice. By allowing the Yuan to strengthen (on again/off again), this causes Japan to hold off on devaluing their YEN (no support for intervention from US/China). Good tactic in someways, but it raises the ante of a protectionism/trade war/geopolitical tensions re: China bidding the YEN up to kill Japan's export edge.

3rd 'Goldilocks Omen' triggered for 2010 - China

Here it comes. Yes China set the 3rd 'Goldilocks Omen' for 2010. I think this will be the last then it's all fucking down hill for the Chinese economy. Still some economists who get off on the 'Keynesian' illusion' believe the custodians and planners of economic sustainability (China), have got it sorted. But even though China reported a smaller trade surplus, with imports surging over a 'small' decline in exports. The belief is the Chinese are managing their economy quite nicely. We know it's bullshit, the biggest economic manipulators in history (The Chinese) have massaged the figures the best they can, and created a somewhat ok trade data, or a 'Goldilocks' impression.

The problem is, the Chinese now either have to increase interest rates quite rapidly (to get a handle on inflation, even though the Chinese statistics indicated 'mild' inflation backed up by butnut economists guessing (...yeah right and you have Chinese cab drivers buying up, not just one but two, 'zombie' units...you fucking brainiacs) or fix the Yuan higher against the USD and get moving in establishing a trade balance with the USA. If this doesn't happening quickly, like right now, Obama and Congress will go into a full scale trade war and the 1st major protectionism cannons will fire off. It will get nasty and this should effect the markets significantly.

So a 3rd Goldilocks Omen has been triggered for 2010.

Banks are starting to set 'long' call positions on risk currencies

Yes 'dumb' smart money doing the 2008 thang (refer to your charts on commodities/risk FX crosses/stocks - 2008) before the shit hit the fan.

Again, there is a ton of risk 'bullish' positions being set, most probably on high leverage.

Bank balance sheets getting destroyed around about October 2010, with the Federal Reserve plugging holes end yr (quantitative easing)

Nasty...

Market is overpricing risk (update 6) -Copper Price 'flash crash', Deutsche Bank capital raising (i.e writedown's ahead)

If you are trading in the markets there are two things (actually there are a 100's of 'things' to be concerned about) that should be of concern ( looking through the central banks smoke screens).

1. Copper prices are sloping down, which as we all know are a cornerstone of economic recovery/boom. Copper dropped on a flash crash sell off (via the Shanghai Futures Exchange), losing 4% value in Asian trading - 09/10/2010. Coppers November 2010 contracts are now starting to show a selling momentum. We have a combination of Chinese investigation into futures trading with various Chinese brokerage firms and slowing demand for Copper.

2. When one of the biggest banks in the world, Deutsche Bank, starts to begin a capital raising via share sales it is the beginning of asset write-downs (ref: to US banks in 2008 prior to the US Treasury i.e taxpayer bailouts). A very ominous sign (especially at a 9billion dollar capital raising), that shows regardless of what the ECB buying programs, the European banks are in a asset deprecation spiral.

and a quick 3. China tensions with Japan, as discussed in Japan is F****** with the market (updated); a trade war has already begun with China/Japan, that may extend into geopolitical tensions. China has been manically buying the YEN (at 27billion so far in 2010), hence driving up the value and hampering export markets in Japan, all whilst the Chinese play around with their Yuan as the biggest currency manipulators in history. A soon to be tension overload.

Major war/conflict cycle commencing? (update 2)

It's alarming that not only are there tension/s starting up between China and the West, also including India, but the markets are simply not pricing in global/geopolitical tensions.

Below report re: India and China

From Reuters 31 August 2010

"(Reuters) - India expressed concerns on Tuesday about China's influence in the Indian Ocean region, the latest sign of tension between the Asian giants who are competing for resources and geopolitical power in the region. India’s Foreign Minister S.M. Krishna's comments to parliament follows a row between the two countries over China's denial of a visa to an Indian army general that angered New Delhi and clouded their slowly improving military ties. "The government of India has come to realise that China has been showing more than the normal interest in Indian Ocean affairs," Krishna told lawmakers. "We are closely monitoring the Chinese intentions. We are closely monitoring the developments in the Indian Ocean."

India worries that China's military is seeking to extend influence over countries such as Sri Lanka that New Delhi has traditionally counted within its sphere of influence. Beijing's territorial claims this year over the South China Sea have only bolstered such fears. While trade has grown 30-fold since 2000, the tension highlights how economic ties alone may not be enough to resolve the two countries growing friction over their disputed borders and role as emerging global powers. China has invested in the Gwadar port in Pakistan, the Sri Lankan port of Hambantota and the mining and energy sectors in Myanmar, part of a strategy to protect shipping lanes in a region that feeds 80 percent of China's and 65 percent of India's oil needs.

India fears huge Chinese investments in these countries are part of a plan to encircle it in a "string of pearls"."

The European Central Bank...

is out of control re: bond (EZ) buying

from FT 8th September 2010

By David Oakley and Jennifer Hughes in London and Kerin Hope in Athens

Published: September 8 2010 19:30 | Last updated: September 8 2010 19:30

"The European Central Bank has stepped in to shore up the eurozone government bond markets in what appears to be its biggest such intervention since early July. The ECB has bought between €100m and €300m of Greek, Irish and Portuguese bonds so far this week, traders said on Wednesday, as worries over the health of some highly indebted eurozone economies resurfaced.

Yields on Greek bonds rose to levels last seen before the €750bn emergency rescue package was launched to avert the collapse of the eurozone bond markets in May.

Although the amount of bonds bought by the ECB this week has been small, some strategists said the purchases were a sign that the European sovereign debt crisis was not over.

The ECB has bought €61bn in government bonds – mostly of the weaker eurozone economies of Greece, Ireland and Portugal – since it launched its intervention programme on May 10 as part of the multibillion-euro international bailout.

It bought €16.5bn in bonds in the first week of the programme but has since scaled back its buying. In recent weeks, as the eurozone crisis appears to have eased, it has bought only very small amounts of government debt.

The so-called peripheral bond markets of Greece, Ireland and Portugal have come under pressure as doubts over their economies and banks have deepened.

Greek yields for two-year bonds jumped nearly a quarter of a point on Wednesday to 10.33 per cent, while Irish yields edged slightly higher to 3.21 per cent. Portuguese two-year yields were flat at 3.28 per cent.

Portuguese auctions of three-year and 11-year bonds were well subscribed, although traders said the government had to pay high yields to attract investors.

Market confidence in Greece was hit by numbers showing that the country sank deeper into recession in the second quarter and fears that street protests were about to resume.

Domenico Crapanzano, head of euro rates sales and trading at Jefferies, said: “Hopes that the eurozone debt crisis had seen the worst are premature. It is far from over.”

Gonna end in tears...when austerity (PIIGS) flops. Can just sense those writedowns on sovereign held debt. I don't even think the ECB printing press will be able to plug that hole.

Major war/conflict cycle commencing? (update 1)

from: Telegraph 7th September 2010

I try to remain optimistic that the US and China will work out a more or less amicable way to run the world for the next half century, a “Chimerica” of interwoven superpowers.

But it was slightly disturbing to hear the warnings of a distinguished China-watcher at a closed-door session of the annual Ambrosetti conference on Lake Como.

(This gathering of the global policy elites at Villa D’Este is a hardship assignment for Telegraph hacks. It fell to me again this year, but somebody has to do it.)

“China’s military spending is growing so fast that it has overtaken strategy,” said Professor Huang Jing from the Lee Kwan Yew School of Public Policy in Singapore. (He kindly let me quote his remarks.)

“The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. They are thinking what they can do, not what they should do. This is very dangerous.

“They are on a collision course with a US-dominated system”.

Harvard Professor Niall Ferguson rattled me even further with a talk warning that the Chimerica marriage of the last generation is “on the rocks”.

“China gets 10pc growth: the US gets 10pc unemployment. That doesn’t seem the basis for a happy marriage,” said Prof Fergusson, – who used to sit next to me at the Telegraph as a young leader writer almost 20 years ago, before he went on to become one of the 100 most influential people on the planet (Time magazine).

The AUD is becoming extremely overbought.

Huge double top forming after rallying from lows on August 25th 2010; a somewhat volatile rally that has reached the top of 0.92 on 09/09/2010, a double top high against the high of 0.92 reached on the 06/08/2010.

The Aust unemployment rate dropped from 5.3% (July 2010) to 5.1 % (August 2010). A mixture of revisions from previous months and hiring for the Australian elections that took place in August 2010; considering that Job ads (private business) and Aust CAPEX are falling, it is very hard to believe that a huge massive Australian job market is forming. More like government hiring that took place in August 2010. A brain dead economist that works for a certain bank says this should prompt the Reserve Bank of Australia to lift rates in October; why are some 'bank' economists suggesting rate hikes? They (they're employers i.e bank/lender) are dying to pass on funding costs to the consumers and what better way to do this is with the RBA nod of approval of rate hikes and banks then can say to *government (when the voters higher funding costs, small/medium business, starts to impede on the so called 'robust recovery):,' well the economy is strong so we hiked with the RBA'.

(*The Australian pre election 'hung parliment' wasn't just for kicks. The voters aint happy...)

All and all the AUD is a tuff currency, literally everything has been thrown at it (hung parliament, weaker exports in July 2010), but with a high yield and yield chasing by investors the AUD is bid.

Can the AUD and the Australian economy handle the next leg of bad news? We will see, just as the employment data came out; Shanghai metals futures crashed (09/09/2010) with long positions on Copper/Zinc being sold at over 5% down. At the moment it's leveraged buys (retail/Asian money) on AUD 'calls' on very tight spreads, most longs are being held by banks at the tune of 4-5billion plus supported via dip buying by retail investors.

The AUD is bid by both dumb 'smart' money and dumb money.

Fixing call/put spreads in favour of 'puts', and/or buying 'puts' (currency warrants ) in upper ranges or at 0.92 is prudent. Refer to the 'pyramid of death' (began on the 9th Aug 2010) on the above chart when the AUD reached it's first top at 0.92, it sank.

It's due for a nice juicy sell.