Financial market report for July 18, 2011
1) … World Stocks fall lower on US Debt and European worries … and commodities turn lower on inflation destruction and exhaustion of quantitative easing.
Reuters reports “With five days remaining before President Barack Obama's deadline for a deal to raise the government's debt ceiling, Republicans and Democrats scrambled to work out details on a fallback plan that would avoid an unprecedented U.S. default.”
Reuters reports “Confusion over competing policy proposals reigned among officials and bankers on Monday as Europe struggled to put together a second bailout of Greece and prevent the region's debt crisis from spreading.” ….. German Chancellor Angela Merkel said on Sunday that while this week's summit was "urgently necessary," she would only attend if lower-ranking officials had already prepared a clear rescue plan. "I will only go there if there is a result." ..… "We are against euro bonds," German government spokesman Steffen Seibert said on Friday, repeating Berlin's concern that a common bond for the single currency area would provide no meaningful incentives for national governments to pursue prudent budget policies.
Loss leaders include
Dr. Sircus' Blog relates Party over for bankers
The fall lower in Annaly Capital Management, NLY, heralds the fall of the final hold out of the seigniorage of Neoliberalism.
The Euro, FXE, traded lower today.
2) … In today’s news
Huffington Post reports Sovereign debt crisis is now global.
Le Figaro reports French Socialist party leader Martine Aubry favors eurozone bonds which would create a Transfer Union.
Bloomberg reports French Socialists Harden Deficit Pledge. French Socialist Party leaders are hardening their commitment to cut the nation’s budget deficit as Europe’s sovereign-debt crisis creeps into the campaign for next year’s presidential elections. “We have to balance the public accounts without delay” and cut the deficit to 3 percent of gross domestic product by 2013, Francois Hollande, the leading contender to become the Socialist candidate for president, said in an interview with yesterday’s Le Monde newspaper. “Debt is the enemy of the left and of France.” (Hat Tip to Between The Hedges)
Der Spiegel quotes Helmut Kohl as saying: “She is destroying my Europe … Sie macht mir mein Europa kaputt.”; but in Bild denies he ever said such a thing.
Wolfgang Münchau, writes in the Financial Times that the probability of a complete collapse of the eurozone have risen dramatically in the last few weeks.
Bloomberg reports Italian, Spanish, Irish, Portuguese Bonds Decline as Debt Crisis Spreads. Italian two-year note yields surged the most in over a year, as the nation’s borrowing costs rose at a debt sale and contagion from Greece’s debt crisis spread across the 17-nation euro region. Yields on notes from Ireland, Portugal and Greece soared to euro-era records, while German bunds advanced for the fifth time in six weeks as Europe’s politicians clashed over how to craft a new rescue plan for Greece involving private bondholders.
Spanish and Italian 10-year bonds slumped, sending yields to the most since the euro’s inception in 1999, as borrowing costs rose to a three-year high at a sale of five-year Italian securities. France, Spain and Germany plan to sell debt next week.
“The market isn’t looking at fundamentals, it is just worried about contagion,” said Huw Worthington, a fixed-income strategist at Barclays Capital in London.
“There’s been growing infection across most of the euro-region issuers and it’s hard to see what the catalyst is going to be to get confidence back into the markets with all the issuance next week.” Italy’s two-year yield climbed 75 basis points over the week to 4.26 percent as of 4:40 p.m. in London yesterday. That’s the biggest weekly increase since the five trading days ending May 7, 2010, the week before Europe’s leaders announced a $1 trillion backstop for the euro. Yields on 10-year notes advanced 48 basis points to 5.75 percent. They reached 6.02 percent on July 12, the most since 1997. Ireland’s two-year bonds plunged after Moody’s Investors Service cut the nation to Ba1 from Baa3 on June 12, saying it is likely to need a second bailout. The country’s two-year yields climbed 6.9 percentage points to a record 23.12 percent, while its 10-year bond yields advanced 1.13 percentage points. Greek 10-year yields climbed 71 basis points over the week, while the nation’s two-year bond yields soared 2.69 percentage points. Spain’s 10-year bonds dropped, pushing the yield up 39 basis points to 6.06 percent. Spanish debt may continue to fall next week as the nation prepares to auction 5.5 percent securities maturing in 2021 and 2026 on July 21. It will also sell 12- and 18-month bills on July 19. (Hat Tip to Between The Hedges)
Zero Hedge reports The true elephant in the room appears: Trillions In Commercial And Industrial Loans To Europe's Insolvent Countries and Mike Mish Shedlock writes As stress test detail come in, the more ridiculous the latest results look. “For example, the four largest French banks have $425 billion in loans to institutions and individuals in Portugal, Ireland, Italy, Greece and Spain. That is on top of whatever sovereign debt they are holding. Regardless, the main problem is a mountain of debt in all the wrong places: Greece, Ireland, Portugal, and Spain. The odds of all of that debt being paid back when the economies of those countries are in shambles is roughly zero percent.”
3) … EconomicPolicy Journal relates the possibility of a Israel-Iran war in September, stating … … “mark your calendar”. I believe that such a war will escalate into a Eurasia war which will draw Russia into Syria to protect its Mediterranean interests in oil pipelines as well as its southern sphere of influence..
4) … An Iron Chancellor and a Federal Union will arise in Europe out of a soon coming global financial and debt collapse.
Today Mike Mish Shedlock reports Sovereign Debt Yields Soar; and last week he questioned "Nanny tate" common bond solution to solve crisis? stating the battle lines are forming for and against "nanny state" common bond solutions that would have German taxpayers covering the liabilities of other countries in a so-called "transfer union". Automatic Earth reports The Emergence of Europe as a Union
The sovereign debt crisis will soon morph in to a sovereign liquidity crisis, which will result in a seigniorage crisis, that is a moneyness crisis, with the head of humanity’s most important institution that is investment, banking, commerce and trade, suffering a mortal wound, that is a stroke.
A Chancellor, whose power and authority will come from Regional Framework Agreements, as called for by the Club of Rome in 1974, which waive national sovereignty, will rise to rule Europe. His demeanor will be fierce and his way strong. Hence he will be the Iron Chancellor, as his rule be like that of Charlemagne. He will be restoring what could easily be called a Revived Roman Empire. He will be accompanied by a continental banker. The word, will and way of the Sovereign and the Seignior, will be the law of the land. Respect for and fear of these two, will provide seigniorage, that is moneyness, as Neofeudalism quickly replaces Neoliberalism.