Financial market report for July 8, 2011
1) … The seigniorage of Neolilberalism that has come with QE 1 and 2 has succumbed to Quantitative Easing Exhaustion, Job Growth Failure and Inflation Destruction turning world stocks, ACWI and VT, and world small cap stock VSS and EWX lower. The failure of seigniorage comes larges from today’s collapse of the European Financials, EUFN, as Greece and now Portugal have lost their debt sovereignty and questions arise about political leadership in Italy.
The break out of FactorShares 2X Gold/ Short S&P, FSG, in an Elliott Wave 3 Up beginning on April 1, 2011.
The 30-10 US Sovereign Debt Leverage Curve Daily, $TYX:$TNX, obtaining a Elliott Wave 5 high in November 2010 and entering an Elliott Wave 3 Down in June 2011, as the interest rate on the US 10 Year Government Note, $TNX, entered an Elliott Wave 3 up in June, 2011. The ratio of BLV relative to LQD, BLV:LQD, and the Flattner ETF, FLAT, turning lower in June 2011
US Stocks Relative To The US 10 Year Government Note, VTI:TLT, and World Stocks relative to World Government Bonds, VT:BWX, turning parabolically lower once again.
US Treasuries, IEF, TLT, EDV, ZROZ, Intermediate Bond Mutual Fund, PIMCO GNMA, PDMIX, Mortgage Backed Bonds, MBB, turning lower in June 2011.
Distress Investments, FAGIX, and Junk Bonds, JNK, topping out and turning lower in June 2011
Morgan Stanley Cyclicals Index, $CYC, entering an Elliott Wave 3 Down today July 8, 2011
The Gold Mining Shares relative to Gold, GDX:GLD, and the Gold Mining Shares relative to US Government Bonds, GDX:TLT, turning lower beginning in April 2011.
Stocks relative to Commodities, VT:DJP, topping out and turning lower today July 8, 2011.
Airlines, FAA and Shipping, SEA, turning lower on the announcement of Quantitative Easing in November 2011.
The topping out of Education stocks, such as Devry, DV.
Yahoo Finance reports Jobs stall, setting back recovery hopes And Zero Hedge reportsThe Birth/Death Adjustment Was Responsible for Over 50% of the Payroll Gains in the Past Year. (graph) … Labor Force Participation Rate Drops to Fresh 25-Year Low: 64.1%. (graph) … More Records: Average Duration of Unemployment; People Not in Labor Force Who Want a Job Now Both at All Time Highs. (graph)
2) … Today July 8, 2011, the world entered in Kondratieff Winter, the final economic season, and Gotterdammerung, an investment clash of national leaders, such as Mrs Merkel, with the rating agencies, such as Standard and Poors, Moodys and Fitch. This investment flameout has accelerated a European banking and sovereign debt collapse.
3) ...In April 2011, the world passed from the age of Neoliberalism, characterised by The Free To Choose Floating Currency Regime, whose fathers are Milton Friedman, Alan Greenspan, Ben Bernanke, and the Bank of Japan, which was characterized by financial deregulation, moral hazard, leverage, credit liquidity, prosperity, economic growth and expansion, that came by securitization of education debt, municipal debt, sovereign debt and GSE debt ... and into the age of Neofeudalism, characterised by the Club of Rome's Ten Regions Of Global Governance, where there are many kings, oligarchs and emergency financial managers, whose authority comes from regional framework agreements, where Leaders waive national sovereignty, and is characterized by regulatory capture, deleveraging, credit contraction, austerity, economic contraction, and sovereign debt and banking crisis, resulting in debt servitude as well as social wilding as seen in rioting and violent crime where love will grow cold.
The topping out of Annaly Capital Management, NLY, exemplifies the end of the securitizaion of debt. The company stands as a white washed tomb to the prior age of prosperity.
4) … Simply by announcement a Banker, a Seignior, and a Chancellor, a Sovereign, have risen to power in Europe as dissent is stiffled in Pakistan.
The Board of Directors of the European Central Bank in suspending minimum credit rating threshold for collateral eligibility for Portugal, has effected a bloodless coup d etat instituting the ECB as Europe’s Seignior. Those living in Europe are no longer citizens of sovereign nation states but rater residents living in a region of global economic and fiscal governance.
Reuters reports Euro States Should Give Up Debt Powers. Euro zone countries should hand over their debt-issuing powers to Brussels while bailouts should not require unanimous support, European Central Bank Executive Board member Lorenzo Bini Smaghi said. The euro zone debt crisis continues to be the main source of worry for financial markets. ECB heavyweight Bini Smaghi warned the bloc was struggling to bring the problems under control and this was pushing up the cost of an eventual solution. "The longer a decision is delayed, the more unpalatable it ultimately becomes, as the action required to calm the markets and to restore stability has to be even stronger," he told a seminar organized by the Hellenic Foundation for European and Foreign Policy. "Crises then drag out as one quick fix gives way to another.”
And Jean Claude Trichet hardened the ECB’s line against a private-sector participation thus instituting universal debt servitude for all living in Europe. This Sovereign’s vision is one for all and all for one. Could it be that Mr.Trichet will arise as as a New Charlemagne to lead a revived Roman Empire and perhaps the entire world out of sovereign crisis?
5) … Warning of social wilding comes from Giulio Tremonti who expressed concern of a breakdown of civil society in Italy saying "If we don't get the budget into balance, there will be a disaster" and Business Insider reports More Details on Italy's Mushrooming Political Crisis That's Causing a Market Panic. And Mike Mish Shedlock adds Italy Finance Minister in Rent Scandal.
New York Times reports U.S. Admiral Ties Pakistan to Killing of Journalist. Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, said Thursday that he believed that the government of Pakistan had “sanctioned” the killing of a Pakistani journalist who had written scathing reports about the infiltration of Islamic militants into the country’s security services.
6) ...Open Europe relates that The Telegraph reports Clegg calls for bigger UK role in eurozone crisis. In a speech in Paris today, Nick Clegg will call for the UK to stop “watching from the wings” in the eurozone crisis, which the Independent sees as contrasting with Cameron’s calls yesterday to use the crisis as an opportunity to renegotiate the UK’s relationship with the EU. Clegg will say, “A successful eurozone is essential for a prosperous UK. So there is no room for Schadenfreude here, no place for wagging fingers. Countries like the UK should not see ourselves as spectators, watching from the wings, triumphalist, complacent, as if Europe's economic woes are a eurozone problem, rather than a problem for all of us. As if it is enough to put your own house in order, but then stand by and let the neighbourhood crumble.” In a swipe at Labour MP Jack Straw, he will say, “On the one hand, some people, including senior members of the previous UK government, are predicting collapse and doing so with short-sighted relish, given it would do lasting damage to the UK economy. On the other hand, some people are now arguing that only complete fiscal union can work. It's not my role, or the role of the British government, to predict the future of a currency union we're not a part of.” He then goes on to predict, “I expect – as is usually the case – things will end up somewhere in between these extremes.”
7) … Open Europe provides a Eurozone comment round-up.
In Greek daily Kathimerini, columnist Nick Malkoutzis writes that the second Greek bailout and the conditions potentially attached to it are “like a Hollywood sequel … likely to make us want to look away in horror.” …...German economists Thorsten Polleit, Ulrich van Suntum and Anton Wiegers write in FT Deutschland: “Let’s face it: Greece is insolvent. It will never manage to get back to normal on its own. And other eurozone countries will find themselves in a similar situation soon …The solution [to the Greek crisis] seems to be too simple to be true. Greece’s debt will be reduced solely by the losses of private investors.” …... In an interview with BBC Hardtalk, Economist Kenneth Rogoff argues, “I don't think there is any question that if you look at it narrowly from Greece's point of view, it would be better to default now, clean it up and move on.” …... In the WSJ Alen Mattich looks at the ECB’s decision to raise interest rates and notes: “Once this policy is seen to be precipitating an existential crisis for the euro as peripheral countries give up the ghost, the ECB is likely to abandon its commitment to price stability and go for inflation. Of course, by the time it does, it could well be too late.” …... In the FT, Gavyn Davies writes: “The ECB is gradually being drawn into the ‘socialisation’ of peripheral country debt, in ways which are completely outside the control of the central bank, and which could yet end in crisis.”
Economist Economist 2 El Pais: Editorial FT: Dervis FT: Davies FT: Spiegel WSJ: Mattich WSJ Real Time Brussels blog WSJ: Lochery Le Figaro: Bébéar & Bonnevay Kathimerini: Malkoutzis FTD
8) ...Financial Times reports European Companies' Debt Costs Rise After Downgrade.
Borrowing costs for some of Europe’s biggest companies have risen sharply this week as the region’s sovereign debt crisis has intensified.
The multi-notch debt downgrade of Portugal to “junk” by Moody’s led to a deterioration in sentiment in sectors including financials and telecoms. Portuguese bank Banco Espirito and Portugal Telecom were two companies whose corporate debt yields, which move inversely to prices, rose as confidence crumbled. Outside Portugal, Telecom Italia and Santander, Spain’s biggest bank, have also seen their bond yields rise this week. In the US, investors have backed away from US commercial paper issued by foreign banks, according to the latest weekly data released on Thursday by the Federal Reserve
9) … Ambrose Evans Pritchard is back and reports ECB Tightens Noose on Southern Europe.
The European Central Bank has raised interest rates a quarter point to 1.5pc to curb inflation and signalled more to come, despite faltering growth in southern Europe and acute stress in peripheral bond markets.
Jean-Claude Trichet, the ECB's president, brushed aside warnings that tightening at this delicate juncture might push Spain and Italy into the danger zone, insisting that every eurozone country stands to lose if the ECB fails to anchor price stability. "The debt problems are contained in Spain and Italy for now but the eurozone is dealing with finer and finer margins," said Simon Derrick, currency chief at the BNY Mellon. "The situation is magnitudes worse than where we were a few months ago and the global outlook is following the pattern of mid-2008 before the Lehman crisis, so people are getting nervous," he said. Hans Redeker, currency chief at Morgan Stanley, said the danger for the eurozone is that long-term investment inflows have dried up. They have been replaced by a growing reliance on hot money funds, attracted by Europe's higher rates. "This money is fickle. It will move out on the slightest sign of trouble. Europe's capital flows are sounding alarms," he said. By raising rates, the ECB may have made matters worse. The ECB's monetary tightening has asymmetric effects, with greater impact on heavily-indebted and rate-sensitive economies in Spain and Ireland than on core Europe. Over 90pc of Spanish mortgages are priced off the floating 1-year Euribor rate, which has risen 66 basis points to 2.19pc this year. Only 20pc of German loans are on floating rates. Rate rises are ratcheting up the pressure as each month a fresh cohort of Spanish households sees a sharp upward adjustment in their mortgage payments. There is a hangover of 680,000 unsold properties on the market, according to government figures. "There is no sign of recovery," said Raj Badiani from IHS Global Insight. "House sales are falling again at double-digit rates and if this spills over into 2012, the pressure on the Spanish banking system could become unbearable," he said.
Bloomberg reports Italian Yields Reach Nine-Year High as Debt Crisis Spreads; Bunds Surge. Italian bonds slid for the fifth straight day, driving yields to a nine-year high, as contagion from Greece’s fiscal crisis intensified in the region’s biggest government-debt market. The yield on 10-year Italian securities jumped to a euro-era record over German bunds as data showed industrial production in the Mediterranean nation dropped while Italian bank stocks fell, paced by UniCredit SpA. (UCG)
A European Union document said governments should be ready to help banks that fail stress tests as a last resort. Spanish, Irish and Greek bonds also fell. “If you are talking about a default in Greece where contagion spreads through Ireland, Portugal and Spain, then Italy is the next stop,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “Italy has an awful lot of debt.” The yield on 10-year Italian bonds rose 10 basis points to 5.27 percent at 5:03 p.m. in London, up from 4.87 percent a week ago. The yield reached 5.38 percent, the highest since June 2002. The 4.75 percent securities due in September 2021 fell 0.715, or 7.15 euros per 1,000-euro ($1,424) face amount, to 96.455. Italy’s two-year note yield jumped as much as 29 basis points to 3.61 percent, the most since November 2008. Credit- default swaps on Italy rose 23.5 basis points to 241, the highest level since Jan. 11, according to CMA. The difference in yield, or spread, between German and Italian 10-year debt touched 247 basis points, headed for its biggest weekly increase since at least January 2010. The difference in the price of Italian and German bond futures widened to a record as the Italian securities fell 0.8 percent to 104.57. The yield spread between Italian and Spanish 10-year bonds narrowed to 42 basis points, the least since March. “The reality now is that those pesky bond vigilantes have caught sight of Italy, and that is basically all that matters,” Michael Riddell, a London-based fund manager at M&G Investments, said in his blog on the company’s website. “Rising sovereign and bank borrowing costs will lead to credit-rating downgrades.
In other words, credit ratings partly get cut because the bond prices fall.” Spanish 10-year yields rose four basis points to 5.66 percent. Yields on similar-maturity Irish bonds increased 20 basis points to 12.92 percent. Greek 10-year yields jumped 17 basis points to 16.86 percent, and the nation’s two-year note yields touched an all-time high 30.40 percent. Irish two-year note yields reached a record 16.74 percent. Portuguese 10-year bonds rose, pushing the yield down nine basis points to 12.82 percent. (Hat Tip to Between the Hedges)
Bloomberg reports Portugal, Ireland Bond Risk Rises to Record, Credit-Default Swaps Indicate. The cost of insuring against default on Portuguese, Irish and Greek government debt rose to records, leading a gauge of the region’s sovereign risk to an all-time high, according to traders of credit-default swaps.
Contracts on Portugal climbed 38 basis points to 1,016, signaling a 58 percent probability of default within five years, according to CMA prices at 3:30 p.m. in London. Swaps on Ireland jumped 59 basis points to 914, Greece surged 25 to 2,175, and the Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 10 to 256. Swaps on Italy increased 27.5 basis points to 245, the highest level since Jan. 11, while Spain climbed 7.5 to 310 and Belgium was up 13 at 174. The Markit iTraxx Crossover Index of contracts linked to 40 companies with mostly high-yield credit ratings jumped 11 basis point to 421, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 3 basis points to 112. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 7.5 basis points to 171 and the subordinated index increased 14 to 303.5 (Hat Tip to Between the Hedges)
10) … John M. Broder of the New York Times reports The EPA Issues Cross State Air Pollution Rule To Slash Plant Emissions Beginning in 2012 … SO2, NOX, to be reduced to cut ozone, smog and fine particle pollution like soot from coal fired power plants. Utilities, XLU, turned lower today.
11) … Wall Street Journal More Vacancies at U.S. Malls.
Vacancy rates at U.S. malls and strip-mall centers continued to rise in the second quarter as small-store owners struggled with the sluggish economy and malls grappled with follow-on store closures. The average vacancy rate at malls in the top 80 U.S. markets increased to 9.3% in the second quarter from 9.1% in the first, according to real-estate research company Reis Inc. Those vacancy figures are the highest Reis had recorded for malls since it started tracking malls in 2000. Meanwhile, average lease rates at U.S. malls remained steady at $38.77 per square foot per year, unchanged from the first-quarter rate, according to Reis. The situation is similar for strip-mall centers, which are smaller shopping centers often anchored by a grocery store or big-box retailer. The average strip-center vacancy rate increased to 11% in the second quarter from 10.9% in the first, while lease rates remained steady at $16.54. Reis forecasts that, later this year, average strip-center vacancies will exceed 11.1%, their peak from the recession of the early
12) … Rasmussen Reports Daily Presidential Tracking Poll.
The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (Hat Tip to Between the Hedges.
13) … Yahoo and CNBC report the 2011 Smart Fortwo 2 door Cabriolet Passion is one of the lowest priced cares with high gasoline mileage: $17,690 MSRP. It comes with a 1.0-liter 3-cylinder engine enables an EPA estimated 33 mpg city and 44 mpg highway.
14) … Stock turning lower today included the following
The Morgan Stanley Cyclicals Index, $CYC , -1.2%
Small Cap stocks trading lower included
Notable fallers included the following
Credit Services company, Encore, ECPG
Consumer Goods: Automobile Parts: TRW Automotive Holdings, TRW
Basic Materials: Cement and Wallboard: Eagle Materials, EXP
Construction Equipment: Terex Co, TEX,
Construction Equipment, CAT,
LED Manufacturer: CREE Inc, CREE,
Nanotech FEI, FEIC,
Textiles: Unifi, UFI,
Home Improvements, Home Depot, HD
Technology: Instruments: Agilent, A,
Building Systems: United Technologies,, UTX
Chemical Manufacturer, PPG
Semiconductor Equipment Manufacturers, AIXG, and KLIC
Financial market report for July 8, 2011