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Two days ago we noted that foreigners are selling US paper at a record pace, whether to raise capital in a locked out liquidity environment like French banks, or to make a politicial statement, like China. Today we get the first confirmation to this from Norway's Sovereign Wealth fund, best known for its prediction that it would buy and hold Greek bonds in perpetuity back in September 2010.
So what does it do? It proceeds to dump US paper. Mortgage Backed Securities first. Because if it announced that a sovereign wealth fund instead of buying into the biggest ponzi ever, we finally defecting from it, then all bets would be of. Bloomberg reports: "Norway’s $570 billion sovereign wealth fund sold all its holdings in U.S. mortgage-backed securities as part of a shift of its fixed-income portfolio. The fund holds no mortgage bonds issued by Fannie Mae and Freddie Mac, the U.S.-controlled mortgage financiers, and an “insignificant” amount of private home loan-backed bonds, said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, today in an interview in Oslo. “We’ve reduced our holdings of mortgage-backed securities,” he said. “MBS has been taken out of our internal policy benchmark. This means that we don’t have mortgage-backed securities issued by Freddie Mac and Fannie Mae any longer."
The stated reason for the dump: prepayment risk: "The debt was sold primarily because of the refinancing risk, he said. In the U.S., when a borrower refinances a mortgage it can cut short the maturity of the bond backed by the loan and reduce the expected interest over time, so-called prepayment risk." The real reason? Why shoring up capital of course. "The fund held 36 billion kroner ($6.6 billion) in bonds from Fannie Mae at the end of the second quarter and 11.5 billion kroner from Freddie Mac at the start of the year." And with the Fed telling us that almost $100 billion in US bonds and MBS having been sold in the past two months, one can be absolutely certain that i) it is not just MBS and ii) it is not just Norway.
The Grand National Party’s defeat in the Seoul mayoral by-election has scared the party off from pushing through the Korea-U.S. free trade agreement, and its ratification is more imperiled now than ever.
As AFP reports, "China’s state media Sunday warned that the country will not be a “savior” to Europe, as President Hu Jintao left for an official visit to the region including a G20 summit. Hu’s visit has raised hopes that cash-rich China might make a firm commitment to the European bailout fund, but in a commentary, the official Xinhua news agency said Europe must address its own financial woes. “China can neither take up the role as a savior to the Europeans, nor provide a ‘cure’ for the European malaise. “Obviously, it is up to the European countries themselves to tackle their financial problems,”
With the question of who will fund the majority of the EFSF, or the €560 billion of the €1 trillion, still outstanding, and with China no longer the slam dunk "dumb money" everyone had expected it to be, Europe turns to the next biggest beneficiary of maintaining the ponzi - the entire G20 itself. Below is the letter just sent out from the two Eurostooges in which they make it all too clear that money talks, or Europe walks. "We will implement these measures rigorously and in a timely manner, and we are confident that they will contribute to the swift resolution of the crisis. However, whilst we in Europe will play our part, this cannot alone ensure global recovery and rebalanced growth. There is a continued need for joint action by all G20 partners in a spirit of common responsibility and common purpose." Too bad Bernie Madoff went to jail before he could send out comparable letters to his own investors who by implication would have become "voluntary partners" with a gun to their head.
The Chinese are experiencing a kind of schadenfreude over this whole thing, secretly enjoying their new power role in international finance as the Europeans go hat in hand to them for contributions for the EFSF. They have said they will contribute but they have also said they want their kilo of flesh: stop complaining about the Chinese currency exchange rates. Fair enough since they fear that it will be perceived as a bailout of the West and that won't be popular with Chinese citizens. They are entirely correct in that assessment.
More information about President Hu’s intentions and the likelihood of China’s investment in the EU bailout fund will probably be attained during the G20 summit this Thursday and Friday. If China decides not to help the EU, European leaders must find other ways of leveraging the bailout fund, and their alternative options at the moment seem quite vague and limited.
This year, the Commerce Department even launched a national initiative designed to attract more investment in the U.S.
That’s what happens when you systematically destroy your own manufacturing base through failed trade policies – you’re forced to beg others to invest in your economy and create jobs.
A Commerce Departmentreport even went so far as to claim that jobs created through FDI pay 30 percent more, on average, than those created by American companies.
The fact is, however, that foreign companies that create jobs in America generally pay less. Not only do they not pay as well as their American counterparts, they also drive down wages domestically.
In the auto industry, foreign companies have flocked to America in recent years. The result has been lower wages for workers at America’s Big Three automakers, a dwindling market share for Chrysler, Ford and General Motors, and an increase in outsourcing by those companies.
George Soros has said that he thinks the Eurozone deal will only last a short time, from one day to three months.
“Veteran investor George Soros has attacked the lack of leadership at the top of the eurozone and said that the new Brussels “deal” to solve the debt crisis will only last between “one day and three months”.
The first being that for all the talk of the “50% haircuts” the actual level of Greek debt is only being cut by 20%. This is because it is only private sector holders of the Greek debt that are being asked to take the haircut. Given that so much of the debt is held by public sector organizations, the total cut in the debt level simply isn’t sufficient to deal with the problem.
Yes, as Soros says, the markets have bounced upon the announcement of the deal but this is because almost any deal, news of any deal, would be better than the vacuum and bumbling that preceded it. However, Greece is still insolvent and increased austerity simply isn’t going to make it solvent again.
Another way of putting this is that the Fat Lady hasn’t sung so it’s not over yet.
* AZUMI SAYS JAPAN INTERVENED IN THE CURRENCY MARKET
* AZUMI: JAPAN WILL CONTINUE TO INTERVENE UNTIL HE'S SATISFIED
* AZUMI SAYS INTERVENTION WAS DUE TO STRONG SIGNS OF SPECULATION - thank god Mrs Watanabe is not speculating on the short side.
* CLEARINGHOUSES SAID TO PREPARE FOR MF BANKRUPTCY, WSJ SAYS
* US REGULATORS ALSO PREPARE FOR MF BANKRUPTCY, RESTRUCTURE: WSJ