Financial Market Report for the week ending June 3, 2011
1) … Bonds, BND, are topping out.
Moody's Says It Expects to Place US Rating for Downgrade Review If No Progress on Increasing Statutory Debt Limit. Translation: unless America promises to increase its total debt to 120% of GDP in one year, the current debt which is just under 100% will be downgraded.
Chart of BND, EDV, TLT,IEF, IEI, JNK
Chart of BND, BLV, LQD
Chart of BND, PICB, BWX
Chart of MBB The lollipop hanging man candlestick in mortgage backed bonds suggests that a market top has been achieved.
Chart of JNK Junk bonds turned down this week. Zeke Faux of Bloomberg reports:: “Bond sales from the U.S. to Europe to Asia soared in May, propelled by speculative-grade companies taking advantage of borrowing costs at historic lows to issue a record amount of dollar-denominated debt. EchoStar led $382.8 billion of global issuance, a 47% increase from April when offerings reached $261.3 billion. And U.S. junk-bond sales of $44.5 billion were almost triple the five-year monthly average, as yields fell to a record low 7.19% on May 19. Investors poured $43.7 billion into bond funds this quarter, exceeding
Chart of FAGIX Distressed investments like those in Fidelity Mutual Fund FAGIX, which are part of the Federal Reserve Balance Sheet due to the exchange of investments under QE TARP, have tuned lower.
Chart of BWX suggests that a double top is being achieved in world government bonds
Chart of emerging market bonds, EMB, Emerging market bonds topped out this week.
Chart of international corporate bonds, PICB, rose, cresting into what is likely an Elliott Wave 2 High.
Chart of BND shows the lollipop hanging man candlestick suggesting a market top has been achieved.
Chart of MUB shows a complete recovery to former highs.
Chart of PIMCO GNMA Mutual Bond Fund, PDMIX shows the strong gains which have come to Gennie Mae investments.
Chart of the US Treasuries Flattner ETN, FLAT, suggests that the yield curve is once again is going to flatten. A flattening of US Treasuries would be consistent with a diminishing of seigniorage of the US Central Bank.
The turn lower in the ratio of long term business debt, BLV, relative to corporate debt, LQD, BLV:LQD, suggests that the bond rally is coming to an end on risk acceptance turning to risk avoidance. Sapna Maheshwari and Zeke Faux of Bloomberg report: “Borrowers are selling the most long-maturity dollar-denominated corporate bonds in three years as a slowing global economy pushes yields on the debt to the lowest level since November. Caterpillar led issuers selling $21.3 billion of investment-grade bonds due in more than 10 years last month”
It is likely that a bottom has been make in the he 10 30 Yield Curve Daily, $TNX:$TYX, and that this yield curve will once again steepen and US Treasuries will fall in value.
Lisa Abramowicz of Bloomberg reports “Prices of loans to high-yield, high- risk borrowers fell the most in almost a year last month as signs emerged that the U.S. economy is decelerating. The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index decreased 0.7% to 95.17 cents…”
And now with the down turn in credit companies, such as American Express, AXP, and Banks, KRE, this ratio suggests that Peak Credit has been achieved.
Going short the Direxion Daily 20+ Yr Treasury Bull 3X, TMF, is warranted.
2) … The Euro rose again today as Open Europe relates that Eurogroup Chairman Jean Claude Juncker has said that a second Greek bail-out has been agreed in principle and that a formal deal is expected “before the end of this month.”
Greek Prime Minister George Papandreou is due to present a tough new economic reform package to Juncker in Luxembourg today in his bid to secure the second bail-out. Papandreou’s proposed measures are expected to include an extra €6.4bn in tax increases and spending cuts this year, accelerated privatisations of state-owned utilities and cuts to thousands of jobs in the public sector.
Kathimerini reports that a group of 16 MPs from Papandreou’s governing PASOK party has threatened to withhold support for the new reform package if sufficient time is not granted to debate it in parliament. Papandreou’s government only has a six-seat majority
Chart of the Euro FXE
Bloomberg reports Bloomberg Moody's downgrade puts Greece in debt-rating hall of shame.
3) … 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.
Gold stocks have disconnected from the price of gold as investors are no longer willing to invest in capital intensive endeavors to find this natural resource GDX:GLD
Gold mining stocks are no longer able to leverage US Central Bank Debt GDX:EDV
Stocks no longer are given seigniorage by the 10 Year US Government Bond VTI:TLT
World stocks are no longer given moneyness by sovereign debt ACWI:BWX. Stocks post fifth straight week of losses after a government job report shows weak hiring in May; they have been unable to leverage commodities since early May 2011 as is seen in the chart of VT:DJP. The world has passed from the Age of Leverage, Personal Investing and Prosperity and into the Age of Deleveraging, State Corporatism and Austerity.
Factor Shares 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. US banks are now under pressure as the seigniorage of the US Federal Reserve is questioned. The main objective of the Fed's 'QE' programs is starting to fail.
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, have been sinking since April 29, 2011 on the failure of the seigniorage of Neoliberalism. Global currency debasement, that is debt deflation, has commenced by inflation destruction.
The Ratio Small Cap Pure Value Relative To Small Cap Pure Growth Weekly,RZV:RZG Weekly, is the currency yield curve and it communicates that competitive currency devaluation commenced with the sale of the US Dollar, $USD, and then got underway with debt deflation that is currency deflation in the world’s major currencies. The worlds small value stocks are now very actively lacking seigniorage from the US Federal Reserve
Doug Noland comments in Prudent Bear article Dismal Payroll Data: ‘Our stock market and economy are now increasingly vulnerable to a self-reinforcing confidence problem. QE2 effects boosted stock prices, and a strong market bolstered confidence. Policy led the markets which then lugged the real economy. Today, the soundness of economic underpinnings is increasingly in question, while QE2’s weeks are numbered. Fiscal and monetary policies have little left to offer a marketplace that has luxuriated in policy largess. And, as always, market direction tends to dictate the tenor of the news/analysis. For about a year now, the bias has been to disregard the bearish and focus instead on the more optimistic interpretation of things. I would not be surprised if this week’s stock market break proves an inflection point with respect to a more “glass half empty” view of our structurally-challenged economy and policy framework.”
4) … Will Jean Claude Trichet rise to be the Sovereign or the Seignior, and establish strong European economic governance?
4A) … Graham Summers relates Despite the fact we were told repeatedly that the Greece situation was solved just 12 months ago, the country is once again at the forefront of the ongoing crisis in the Euro-zone.
Having already thrown billions at this problem last year, this time around European officials are actually considering REAL solutions, i.e. Greece leaving the Euro-zone. Of course, as soon as these rumors surfaced, several Greek officials (who never seem to be named) quickly responded to say the rumors are unfounded.
At this point it is clear that the Euro-zone will be restructured in the near future. Whether or not it will change with Greece alone leaving the EU, or if we see multiple players drop out, one thing is clear: the EU in its current form is finished.
How we get to this outcome remains to be seen. But the "Greece issue" serves as a perfect illustration of the central issues plaguing the world financial system today.
Consider that Greece's entire GDP is less than $330 billion (about the same size as the state of Massachusetts). The country also has a debt to GDP levels of over 100% and deficit of around 12%.
In other words, it's clear, plain as day that the country is broke. So why does Greece matter so much to the EU? The answer is quite simple: derivatives and the interconnectedness of the global banking system
4B) … Open Europe relates Trichet Has A Dream -- European Unity And Economic Governance
4C) … Political integration of Europe has been ongoing ever since the 1950s; soon a Chancellor, the Sovereign, and an Banker, the Seignior, will rise to establish strong European economic governance.
Associated Press reports Unions protest planned privatizations: members of Greece's two most powerful unions have marched through the center of Athens to protest against the government's fiscal austerity policies and plans to privatize several state firms.
Two nations have benefited the most from the Euro, Germany and Greece; and these two are polar opposites. The former a prime example of capitalism, and the latter socialism. In Greece there are only socialist parties, some more extreme than others. The Euro set the Germans free to benefit from their industriousness, and the Euro raised both the income level and standard of those living in Greece as the state became the provider of jobs. Patrick Donahue and Christian Vits of Bloomberg report: “German unemployment fell in May for a 23rd straight month as export-driven growth and increased spending by businesses and consumers extended a jobs boom; the jobless rate declined to 7%, the lowest since records for a reunified Germany began in 1991.’ Socialism was financialized with a lowering of sovereign interest rates from the convergence to the Euro, Unfortunately in Greece, tax avoidance became tax evasion and the national pastime became tax evasion; few paid taxes in Greece and many had and have state and not business jobs. The coming job cuts mandated by the sovereign aid package in Greece are going to be extreme; it is going to be an economic and cultural earthquake; brutal to say the least.
And Mike Mish Shedlock documents the failure of socialism in one of Spain’s independent regions: No Money to Pay 70,000 Employees In Castilla-La Mancha Region of Spain: Situation a "Total Failure": “My friend Bran who lives in Spain passed along this bit of news regarding Spain. After the power change in the Castilla-la Mancha community, the new People's Party governorship effectively declares it bankrupt, with 2 billion EU unpaid service bills and 7 billion EU in debt; 70,000 state workers are only guaranteed one month's wage now.”
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 and Greece 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, or Jean Clude Trichet, who was awarded Charlemagne’s Prize, 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
5) … Bellingham’s Mayor Pike says he will fight the Gateway Pacific Coal Terminal Project
From Stark reports Mayor Dan Pike has issued a written statement announcing he will fight SSA Marine’s proposed Gateway Pacific Terminal project proposed for Cherry Point. Pike says the environmental, health and economic costs to the city of Bellingham are too high, and the jobs the project promises to deliver are not enough to make up for those costs.