Currency report for the month of May 2011
I) … Neoliberalism failed in May 2011; it is being replaced by deleveraging and despotism.
1).... The Age of Deleveraging began in 2011
World stocks entered an Elliott Wave 3 Down in May 2011 ACWI.
The Morgan Stanley Cyclicals Index, $CYC, World Small Cap, VSS and Emerging Small Caps EWX turned lower in May 2011. Small Cap shares falling lower in May 20111 included, PSCE, PSCT and PSCI.
Financials turning lower in May 2011 included KRE, EUFN, EFN, STD, HDB, KB, BRAF,and CHIX; this rise was a up in a bear market and all of these should hve been sold.
Sectors turning lower
RZV -0.4 and RZG were both excellent short selling opportunities
Countries turning lower included
Chart of IWO shows an end of the moth rally that was a short selling opportunity.
2) … Neoliberalism failed in 2011 with the failure of the yen carry trade with the rise of the Yen, FXY, seen in the Carry ETN, ICI, falling lower and the exhaustion of Quantitative Easing as is seen in the following ratios turning lower on April 11, 2011.
FactorShares 2X Gold/ Short S&P, FSG, broke out on April 11, 2011 on the failure of Neoliberalism’s seigniorage. Banks leveraged with mortgages have fallen lower since the failure of Seigniorage on February 11, 2011 as is seen in the chart of KRE, FITB, HBAN, NYB, PNC, RF, STI, USB
The failure of the Milton Free To Choose Currency Regime is seen in competitive currency deflation commencing taking world currencies, DBV, Emerging Market Currencies, CEW, and commodity Currencies, CCX, lower: all currencies with the exception of the Yen, FXY, the Swiss Franc, FXF, and the New Zealand Dollar, BNZ, are sinking on the failure of the seigniorage of Neoliberalism.
Authors write on the entrance of the workl into Kondratieff Winter
Gordon T. Long The Economic Death Spiral Has Been Triggered
Captain Hook in Financial Sense Currency debasement rates to accelerate across the board
John Mauldin in Safehaven A Random Walk Through the Minefield
3) … The Age of State Corporate Rule, that is corporatism, began in 2011
The truth is established by two or three witnesses, so I decided to provide abundant evidence.
24hGold The political doctrine of statism
Bob Livingston in Personal Liberty Digest Supreme courts affirm the police state
Activist Post House to house random searches now possible
Economic Policy Journal Barney Frank is suddenly concerned about the Constitution
Andre Damon in WSWS.org Obama signs extension of Patriot Act spy powers
Mike Mish Shedlock Spain establishes order with rubber bullets and WSWS.org Police beat anti-austerity protesters in Barcelona, Spain
Joseph Kishore in WSWS.org White House unveils corporate deregulation scheme
Julie Hyland in WSWS.org Obama addresses UK parliament: A joint agenda for austerity and war
Bill Van Auken in WSWS.org US Defense Secretary Gates urges post-2011 occupation of Iraq
Stephen Lendman Extending key Patriot Act provisions
Jeff Berwick in Safehaven.com The Door is about to shut for Americans
Activist Post Ten indications the US is a dictatorship
Bloomberg reports China Raises Power Prices for Business, Farmers as Summer Shortage Looms. China raised electricity prices for businesses and farmers for the first time in more than a year, threatening to exacerbate inflation as the nation aims to curb power shortages that may be the worst on record. The increase in electricity costs may complicate China’s fight against inflation, which is above the government’s target. The world’s biggest energy consumer may boost residential rates in the second half, according to Citigroup Inc. Higher prices may spur generation as pressure eases on profit margins squeezed by rising coal costs. An electricity shortfall this summer may be as much as 40 gigawatts, surpassing the 2004 record, State Grid Corp. of China said. Yanzouh Coal Mining, YZC, rose 6.01, manifesting as a short selling opportunity.
II) … General Economic News
Shobhana Chandra of Bloomberg reports Consumer Confidence Slumps to 6-Month Low. Consumer sentiment unexpectedly decreased in May to the lowest level in six months as Americans grew concerned over the outlook for jobs and the economy, while a measure of home prices dropped to a nine-year low. The Conference Board’s confidence index dropped to 60.8 from a revised 66 reading in April, figures from the New York- based private research group showed today. Home prices decreased 5.1 percent in the first quarter from the same time in 2010, according to data from S&P/Case-Shiller.
A separate report today showed manufacturing cooled. Consumer finances have been squeezed by rising costs of food and fuel and erosion in home equity, causing spending to slow. The group’s measure of present conditions decreased to 39.3 from 40.2 a month earlier. The gauge of expectations for the next six months slumped to 75.2, the lowest since October, from 83.2. The share of respondents expecting more jobs over the next six months dropped, as did the proportion projecting their incomes will rise.
Alex Kowalkski of Bloomberg reports Chicago Purchasing Mangers Index Falls to 56.6 in Sign Expansion Slowing. Business activity in the U.S. cooled more than forecast in May, a sign manufacturing may be leveling off after leading the recovery in the world’s largest economy. The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 56.6 this month, the lowest since October 2008.
III) … The Next Chapter In The Euro Saga Begins June 20th.
Evaldo Albuquerque of Exotic FX Alert writing in the Sovereign Investor relates the next chapter in the euro saga begins June 20th European Finance ministers will be meeting on June 20th in what’s known as the Ecofin meeting. Heads of states will also meet on the 24th. They must have a solution by then! If they don’t, the IMF won’t disburse more money, and Greece will run out of cash. At the End, EU Authorities will do what they do best, bail them out. It’s very unlikely Greece will default now. EU authorities will do what they do best: kick the can down the road. They will once again buy time by buying Greece out of trouble. European authorities know they would be opening a Pandora box if there was any sort of debt restructuring. The fear of more defaults would quickly spread to other countries, such as Spain and Belgium. With many European banks holding papers from those countries, this could lead to a banking crisis.
EconomicPolicy Journal states Inspectors say Greece missed all fiscal targets Well, the Greeks are taking bankster austerity plans seriously. Greece has missed all fiscal targets agreed under its bailout plan, a mission from an international inspection team found, putting further funding for Athens at risk, according to the German magazine, Spiegel, Reuters reports.
Greece will likely go into default at some point. It is going to be near impossible for politicos in Euro countries like Germany to support sending more bailout money to Greece, when the Greeks can't significantly slow government spending. German Chancellor Angela Merkel is likely under extreme pressure from banksters to keep the money flowing, but it is political suicide if she continues to do so.
And Reuters reports German FDP Expert Calls for Greek Eurozone Exit. A leading finance expert of the junior coalition partner in Germany's parliament called on Tuesday for debt-laden Greece to exit the euro zone. "As long as Greece hasn't privatised a single cent worth of assets, increasing the aid would be absolutely the wrong signal," Free Democrat parliamentarian Frank Schaeffler told business daily Handelsblatt. "At the same time governments must help with an orderly euro zone exit," added Schaeffler, one of the loudest dissenting voices against Greek aid in the FDP. Athens should restructure its debt and private creditors should participate in the restructuring, he said.
Doug Noland relates its Throwing Good Money After Bad. With market focus returning to Credit issues, I’ll attempt to somewhat refine and reiterate my macro thesis. Unique from a historical perspective, the world has been operating for some time now without mechanisms to limit either the quantity or quality of Credit creation. There is no gold standard, no Bretton Woods currency management regime, or even an ad hoc functioning dollar reserve system. I believe it was about a decade ago I began referring to “Global Wildcat Finance.”
Myriad complex forces nurtured such an extraordinary backdrop. The “technology revolution” and “globalization” were, of course, prominent factors. Financial innovation played a major role, as did increasingly “activist” policymaking. The Greenspan era radically changed how much of the world viewed the role of monetary policy.
Within Credit systems, “dynamic” marketable debt and Wall Street structured instruments increasingly replaced the “staid” bank loan as the driver of system Credit creation. Meanwhile, the centerpiece of American monetary management shifted to market intervention and the assurance of ample marketplace liquidity. Global financial systems and policymakers jumped aboard this powerful trend.
Much of the world remains gripped in a multi-decade Credit Bubble.
The most aggressive – and synchronized - reflationary policymaking imaginable rejuvenated global Credit Bubble Dynamics and spurred yet another round of financial excess (the "global government finance Bubble"). This has in no way alleviated structural Credit system fragilities and vulnerabilities.
The nature of Bubble Economy economic distortions matters greatly in how a system is able to respond to Credit crisis. Will the post-Bubble response emphasize ramping up production, trade and savings to work one’s way through a crisis? Or, instead, will it be more a case of depending largely on additional Credit creation/inflation?
Let’s turn to the Greek debt situation. Greece is mired in crisis a year after an enormous bailout package. The Greek economy is performing quite poorly in spite of ongoing huge federal deficit spending. Prospects for deficit reduction are grim, which is making everyone nervous. There is today insignificant capacity to boost production – thus limiting the capacity for real wealth creation to stabilize economic and financial systems. Greece required a big handout last year; they need another this year; and they’ll be seeking ongoing assistance for years to come.
Greece enjoyed a huge Credit-induced boom – and regrettably little of the debt was “productive.” Not surprisingly, the Greek economy and Credit system are proving the opposite of robust.
Greece is in trouble - and the entire European periphery is in trouble. Protracted private-sector Credit booms significantly elevated price levels and distorted economic structures. The events of 2008 incited a crisis of confidence in the underlying Credit, which instigated a cycle of massive government debt issuance. The public sector debt splurge, having only a temporarily stabilizing impact, then hastened a problematic crisis of confidence in government debt, first in Greece, then Ireland and Portugal – and increasingly pointing toward Spain and Italy.
Instead of the initial $150bn or so bailout resolving the Greek crisis, as had been expected, there’s growing recognition that it’s little more than an initial down-payment. A “drop in the bucket” and “seeming black hole” are perhaps too pessimistic. Importantly, expectations that early resolution to the Greek crisis would thwart contagion effects throughout the periphery have proven miscalculated.
Many European policymakers must now wish that Greece had been cut loose a year ago. But just saying “no” becomes only more difficult, more political, the consequences more uncertain, and possible outcomes increasingly dangerous. Unfortunately, it is the nature of the way these things unfold that the stakes seem to only rise year-to-year. Somehow, next thing you know, it’s the classic dilemma of open-ended financing for insolvent borrowers – the dreadful trap of “throwing good money after bad.”
The scope of the Greek debt problem is proving much greater than was appreciated not long ago (recall that Greece enjoyed 2-yr yields of about 2% in early 2009 vs. today’s 24%). The problem in Portugal is much larger, and ditto for Ireland. I expect, over time, the marketplace to come to appreciate similar dynamics for Spain, Italy and others, including the U.S. Ominously, stabilization here at home has required zero rates, massive Fed monetization, and double-digit-to-GDP federal deficits for going on three years now.
Think of it this way: prolonged booms in private-sector Credit inflated both asset prices and nurtured maladjusted Bubble economies throughout the “developed” world.
This unprecedented expansion of household and corporate debt fueled a bonanza of tax and other receipts for the government sector (which, in Bubble economy fashion, was extrapolated and spent lavishly). When the Bubble burst in 2008, federal finances - in Washington, Athens, Madrid and elsewhere – seemed, fortuitously enough, in good shape. This Bubble distortion emboldened policymakers – and emboldened policy emboldened the markets. And we jumped head first right back into Bubble Dynamics.
Going unappreciated was the extent to which previous Bubble excess had inflated receipts and distorted the true underlying fiscal situation of most governments – along with the extent to which Bubble Economy structures had become Credit gluttons.
Unbeknownst to policy makers at the time – and remaining unappreciated, especially here at home – is how aggressive (fiscal and monetary) stimulus packages set a course for severely impairing the creditworthiness of the underlying sovereign debt. What was thought to be a couple of years of elevated spending to resolve post-Bubble issues has evolved into ongoing public-sector borrowing and spending that does little more than hold the next crisis at bay.
The unprecedented expansion of sovereign debt throughout the “developed” world is all that sustains the entire private and public debt pyramid. I see over whelming support for the Bubble thesis, with (Minsky) “Ponzi Finance” footprints all over Credit systems, the markets and real economies. Fortunately for the Eurozone, Germany and other “core” economies have powerful manufacturing and export sectors that tend to underpin system stability. Unfortunately, the “core” is now seemingly trapped in costly ongoing subsidies to the European “periphery.” Here at home, the “core” is the problem. There is no credible plan to get runaway federal deficits under control – and the markets are for now just fine with it.
IV … The chart of the gold ETF shows gold to be in breakout
Jack Chan’s chart on Safehaven.com shows a renewed investment demand for gold
V) ... Real Estate, IYR, and Real Estate Trusts rose to a new high on the rise of Mortgage Backed Bonds, MBB, and the rise of retailers, XRT such as Ulta Salon Cosmetics And Fragrances, ULTA. REITS soaring included, EQR, PPS, SPG, SLG, EPR GRT
VI) … Peak Credit is likely being achieved as preferred shares, consumer credit companies, and Bonds, BND, rose to new highs.
Bonds, BND, and Junk Bonds, JNK and Mortgage Backed Bonds, MBB, rose to new highs; as did credit companies American Express, AXP, and Encore Capital Group, ECG, and Closed End Funds: F&C Claymore Preferred Securities Income Fund, FFC, and Payday loan company, EZPW,
Emerging market bonds, EMB, rose strongly.
The dark cloud covering candlestick in the Flattner ETF, FLAT, and the flattening of he 10 30 Yield Curve $TNX:$TYX to 200 day moving average suggest that bonds are topping out.
VII) … Switzerland, EWL, rose to a new high on a flight to safety.
VIII) ... Biotechnology, XBI, Pharmaceuticals, XPH, Small Cap Health Health Shares,, PSCH, Leisure & Entertainment, PEJ, Auto Auction, KAR, Auto Parts, AZO, and railroads such as Transportation: Railroad: Kansas City Southern, KSU, rose to new highs.
IX) … European Regional Economic Governance will emerge out of sovereign debt crisis before 2013.
Milton Friedman, Alan Greenspan and Ben Bernanke as well as George Bush and Barack Obama led Neoliberalism. An important question is who will emerge to lead regional government in Europe.
Ongoing social unrest in Spain coupled with ongoing European wide sovereign debt issues is setting the stage for the establishment of ten regions of global governance as called for by the Club of Rome in 1974.
A Chancellor, that is the Sovereign, as well as a Banker, that is the Seignior, will arise to provide a new seigniorage, that is a new moneyness, based not upon sovereign debt, but rather political coordination of their word, will and way.
Out of Gotterdammerung, that is an investment flameout and financial collapse, state leaders will announce regional framework agreements, which waive national sovereignty and establish regional economic governance; regional political councils will assign stakeholders to operate industries such as oil shale production and petroleum pipelines, such as TransCanada PipeLines, TRP.TO, and Kansas City Southern, KSU, for the regional good
These appointed leaders will effect defacto expropriation and oversee the factors of production such as, labor and capital to establish state corporatism, that is statism.
Greece is the poster nation for the coming loss of national sovereignty. Patrick O’Connor in WSWS.org article Banks demand savage austerity measures in Greece relates The Financial Times reported Sunday that the new loans would be conditional on an “unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets.”
Its reasonable to state that the leaders in Portugal, Greece and Ireland have traded the people’s sovereignty for seigniorage aid. People in these states are no longer living in sovereign nations but in a region of global governance called the Eurozone. Ten such regions were called for by the Club of Rome in 1974.
Patrick O’Connor continues: “Yesterday, the Greek daily Kathimerini added: “The troika has insisted that its representatives have a say in the decisions [of the agency formed to implement the privatisations] and that they are able to block any moves they disagree with. They have also demanded that no representatives of the government be allowed to participate in the agency and that any decisions it takes should be protected by law so that they cannot later be reversed by a different government.”
And he adds: “These extraordinary developments make clear that the European financial oligarchy is dispensing all pretence of basic democratic norms and principles of national sovereignty in Greece”.
I believe that very soon the EU will not exist in its current form.
An Iron Chancellor, the Sovereign, perhaps Herman Van Rompuy, and an Adept Banker perhaps Mario Draghi, or Christine Lagarde, will provided a new seigniorage.which will be for the most part political and not economic; such will require and enforce great austerity and mass layoffs in socialist state regimes
particularly the periphery nations, that is the PIIGS.
The seigniorage of Neoliberalism was based upon US Treasuries and other sovereign debt, distressed
Investments such as those in Fidelity Mutual Fund FAGIX, mortgage backed bonds, MBB, securitized by firms such as Annaly Capital Management, NLY, and distributed in intermediate bond funds such as Pimco GNMA Fund, PDMIX, a fund normally invests at least 80% of assets in a diversified portfolio of securities of varying maturities issued by the Government National Mortgage Association.
In contrast, the seigniorage of Despotism, will be mostly political and will be two fold.
First it will be based upon agreements amongst regional leaders. Insight into such future leadership comes from the Mike Mish Shedlock report Panic Capital Flight in Greece, Depositors Yank 1.5 Billion Euros in 2 Days;EU Wants Severe Bail-Out Conditions Including International Tax Collection as well as the Tyler Durden report EU Holds Unannounced Emergency Talks With Greece Over Weekend To Draft Second Bailout As Two Year Greek Bonds Pass 26%
And secondly, the seigniorage of Despotism, will be based upon the word, will and way of the Sovereign and the Seignior.
European Federalism has been creeping in scope and power since World Ware II, with the aid of the Spinelli Group and others. A Euro Centric Continent, now precludes a return to an age of sovereign nation states.
Sovereign state currencies are a pipe dream of the Mises.Institute and Austrian economists. A much greater likelihood is the rise of a Euro German Empire, that is a revived Roman Empire, with a political leader and a banking leader whose power will rival and exceed those of Charlemagne; such an assertion being given credibility by the Sven Heymann WSWS.org report Germany’s new military doctrine of “national self-assertion”.
Growing budget deficits mean austerity first for single moms, then the lower class, and finally the middle class as Treasury auctions fail. James Brewer of WSWS.org reports Cuts in US welfare programs hit hundreds of thousands of poor families
Currency report for the month of May 2011