Around the Globe 05.17.2013

Junk rating risk casts shadow over Spanish bonds | Reuters.

Spanish 10yr SB 05.17.2013

This article makes the case that the inevitable downgrade of Spanish sovereign debt will precipitate increased selling pressure and a widening of the bund/bono spread.  I agree with this hypothesis in the short-term, but the big picture still remains the same.  World central banks are simultaneously creating money, and this cash has to be invested somewhere.

A ratings downgrade will result in a temporary correction of SSBs with the inexorable march of decreasing yields resuming after a couple of weeks.  When the endgame arrives, the cause will not be so obvious as a ratings downgrade.

UPDATE 3-Slovenia issues $3.5 bln bond, buying time on reforms | Reuters.

Slovenia 10 Year Bond Yield 05.17.2013

Ratings downgrades are lagging indicators and are not as important as the laws of supply and demand for a security.  The reach for yield ensured that Slovenia was able to sell €3.5bn in bonds with a whopping €16bn in auction bids.  This debt sale delays the Slovenian bailout request by at least six months.

Stock Market Gains Show Signs of Wear.

Markets Not Spooked by Fed ‘Taper’ Talk, Yet.

Markets Insight: Phoney QE peace masks rising risk of instability – FT.com.

Morning MoneyBeat: Good Luck Shorting This Market – MoneyBeat – WSJ.

Fed QE versus SP500We all know the story.  Money printing raised stock markets and lowered volatility, but the system is growing more unstable every minute this situation persists.  One reason has to do with short sellers.  Normally, as equities rise, bears anticipate their eventual fall and open short positions.  Too much money sloshing around the system guarantees that even the dogs are rising, so it is very difficult to make money by selling short.  The bears capitulate and stop opening short positions while covering preexisting short bets feeding the rally even more.

The problem arises when the market begins to tumble.  Ever wonder who in their right mind is buying while the market is imploding 5 to 10% in a single session?  It is the bears closing their short positions by buying securities.  Since those short positions are no longer being opened, there will be no buying pressure when the market desperately needs it.

Don’t worry about that for now, just keep buying.  As long as the music plays, get up and dance.

Gold Selloff Deepens; Metal on Track for 26-Month Low – WSJ.com.

Five Reasons Why Gold Bulls Are Right – MoneyBeat – WSJ.

Gold 05.17.2013

Gold is not an investment.  It is a hedge against currency failure.  One buys gold not to become rich but to avoid becoming poor.  Speculators are leaving the gold market in droves, which means the metal will become more affordable for hedgers.  It also means that the profit making opportunities of the last decade are gone.

Gold bugs rely on increased physical purchases for their continued bullishness, but high bullion sales are actually a contra-indicator.  When the sheeple get involved, you know they are being led to slaughter.

Austrian rivals baulk at supporting Hypo Alpe Adria bad bank | Reuters.

austria-loans-to-private-sector

Austria is supposed to be on of the strong eurozone countries.  The country is enduring a recession and a low level banking crisis.  Come to think of it since the periphery is undergoing depressions and full-blown banking crises, I guess that makes Austria a strong Eurozone country.  Is it strong enough to continue bailing out its fellow Eurozone members in perpetuity?

Finnish Finance Minister Urpilainen to Continue After Reshuffle – Bloomberg.

Jutta UrpilaisenThe Finnish FM is a hardliner when it comes to these Eurozone bailouts.  Finland is another supposedly strong Eurozone country mired in a year long recession, and its assent is crucial when crafting these bailout packages.

The FM has proven to be a bailout hardliner up until the time she caves and approves whatever mischief the troika has created.

Italy’s new government takes first economic steps – FT.com.

Enrico Letta

In order to obtain Berlusconi’s support, the Italian Prime Minister agreed to fulfill Bunga’s campaign promise to eliminate this hated property tax.  Italians shouldn’t celebrate too much, because Italy will find another way to get its money.

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