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3 Month Euribor Touches 0.9% For First Time In 2010
Another disconnect is forming out in Europe, where the much more popular overnight lending metric Euribor rose by 0.001% overnight and hit 0.900% for the first time in 2010. At the same time, EUR Libor dropped slightly to 0.83031 from 0.83156. Alas, the latter datapoint seems to be less relevant: as we have long observed, European interbank liquidity is contracting, confirmed by Market News: "On Tuesday, in the ECB's full allotment Main Refinancing Operation
banks tapped E155 billion of 1 week liquidity. With this operation
replacing a maturing E190 billion MRO, as economists at Citi noted the
reduction in overall liquidity in the euro area is continuing." Market News also points out the obvious lack of correlation between Libor and Euribor: "In theory this is likely to carry on feeding through to
higher short term money market rates. Euro 3 month LIBOR rates, however,
have not risen since July 29, after their prolonged move higher."We hope for Europe's sake that ever increasing reliance on the ECB for all sorts of liquidity requirements, both short and long-term, will be offset by the export boom, which is now unfortunately over, courtesy of a EUR which any day now will be back to the mid/upper 1.30s. The result will be a continuing game of currency devaluation ping pong, so that one quarter Europe can benefit from an export surge, the next one: the US. We also hope, there is someone left out there to import all this stuff. As we saw in China's trade balance data, the trade deficit was a one time affair, and for the third month running China is again running a trade deficit. So just who is this net importer?
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Just puked over my terminal...
I laughed.
The gold market is also laughing!
We're so...o...o...o...o dead.
The 'ball trap' comes to mind and being caught in one is not something to be proud of.
The accounting standards for Government today allows everyone to be a net exporter!
Gold purchases count as IMPORTS, viz China's trade deficit.
Just sold the break in the Euro, or as they say "sold the hole" - ouch!
Thoughts on the reason for the Euribor spike, since it does not seem to be correlated with other indicators of Eurozone bank liquidity, swap spreads, 3-month eurodollar rates, cds premiums, etc. ? Thanks!
I believe that debt deflation will commence again in August 2010 as currency deflation recommences as it did when the currency traders sold the major world currencies, DBV, in particular the Euro, FXE, and emerging market currencies, CEW, against the Yen, FXY on April 26, 2010.
Credit will soon gradually run dry, that is there will be a credit and liquidity evaporation as the currency traders sell the Euro, and other currencies, on risk aversion to reports of ongoing worldwide deflation and on three deficiencies in the EU stress tests. First, they missed an opportunity to fortify the banks. Second, they failed to mention the systemic risk poised by the plummeting liabilities in the shadow Landesbanken banking system. And Third, they failed to highlight the tight credit existing in Europe, specifically the continual contraction of interbank lending.
The Irish Independent reports that the €440bn eurozone rescue fund has met the 90 percent requirement of the 16 nation shareholders now that the Italian Parliament approved the EU Leaders plan. The vote in Rome means that the European Financial Stability Facility, EFSF, can now proceed to issue Eurobonds with funds being raised lent to struggling governments.
However, as the eurobonds are securitized, rated and finally sold, this will only serve to monetize existing sovereign debt. Furthermore the future issuance of bonds by the EFSF, will create a sovereign debt agency in the Eurozone which creates a federal monetary authority that strengthens European economic governance and nullifies any remaining national sovereignty.
I believe that “Credit Bosses”, that is credit seigniors, will oversee the disbursement of credit both in the US and Europe.
Here in the US, I envision, that out of a coming credit crisis, where there is no credit available, a Financial Regulator, will exercise Discretionary Governance, and announce a Home Leasing Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have done servicing mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.
I also envision that this Credit Seignior, perhaps in public private partnership with American Express, AXP, and Capitol One Finance, COF, will provide seigniorage for credit. He will issue credit mostly to those companies which serve strategic national needs.
In Europe, I see a new role for the President of the ECB. I envision that in response to severe credit contraction and banking ill-liquidity, that he also will be Credit Seignior, as he accepts sovereign and other debt and issues credit to Eurozone member banks thereby keeping some degree of money liquidity flowing.
The European Financials stock market rally is over and the Euro is falling lower, as the chart of the European Financials EUFN shows it to be topped out and falling 1.2% lower today. And the chart of the 2x Euro ETF URR shows it falling 5.6% lower; thus both stock deflation and currency deflation is underway.
And Bond deflation has commenced as well, as can be seen in the 2x US Government Bond ETF UBT falling lower.
So a total debt deflationary vortex has formed with stocks, currencies and bonds all trading lower. Today, August 4, 2010, the world has entered into Kondratieff Winter, that is the final season of economic and political experience where wealth will be exhausted and liberty destroyed.
Updated DOW daily chart:
http://stockmarket618.wordpress.com
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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