Financial Market Report for July 22, 2011
1) … The charts of Industrials, IYJ, and transports, IYT, clearly show the trend is now down.
World stocks, ACWI, World Small Caps, VSS, the S&P, SPY, the DOW, DIA, the New York Composite, NYC, the Russell 2000 Growth, IWO, Latin America, LATM, the Nasdaq, QTEC, Real Estate Asset Management Company, Blackrock, BLK, all crested and entered an Elliott Wave 3 Down down on July 8, 2011, on the failure of the seigniorage of Neoliberalism, exhaustion of quantitative easing, and inflation destruction.
The prosperity that came with the Milton Friedman Free To Choose Neoliberal Regime is being replaced by austerity of the Diktat of Regional Framework Agreement Neofeudalism Regime and will see the fall of Junk Bonds, JNK, Distressed Investments, FAGIX, and Utilities, XLU, as interest Treasury Rates rise and the Euro, FXE, fall lower. With the Leaders’ Announcement of Greek Default, the world has passed from Democracy into Statism, that is State Corporatism, manifesting in the ten regions of global governance as called for by the Club of Rome in 1974.
The defensive utility stocks, Nisource, NI, Idacorp, IDA, NextEra Energy, NEE, manifest as topping out.
Residential REITS such as EQR, Retail And Shopping Center REITS such as Gilmcher Realty Trust, GRT, and Industrial REITS such as Extra Space Storage, EXR, are now topping out and will be turning lower. Their seigniorage is based upon monthly rents and are the last hold out in the prosperity that came with the Age of Leverage which was dependent upon so called financial deregulation which came from the repeal of the Glass Steagall Act, the ability of companies such as Annaly Capital Management, NLY to scrutinize GSE Debt, primary dealers and investment bankers given POMO to sell Treasury bonds, and the mark to fantasy, not mark to market, rule of FASB 157.
Yen carry trade lender Sumitomo Mitsui Financial Group, SMFG, is now rising on a higher Yen, FXY, cresting up into an Elliott Wave 2 High, and will be entering an Elliott Wave 3 Down. The iPath Optimized Currency Carry ETN, ICI, entered an Elliott Wave 3 Down in late April and early May 2011, as the Yen, FXY, began its Elliott Wave 3 Up rise.
The failure of the seigniorage of Neoliberalism is also seen in The Morgan Stanley Cyclical Index Basic Material Component, Freeport McMoRan Copper & Gold, FCX, cresting through an Elliott Wave 2 High and turning lower.
Technology shares, XLK, is now attaining a double top.
Small Cap Industrial ball bearing Manufacturer, ROLL, is also attaining a double top.
The Metal Manufacturing ETF, XME, is cresting up into an Elliott Wave 2 High.
The Commodity Base Metals, DBB, is cresting up into an Elliott Wave 2 High.
Pay Day Loan Company, EZCORP, EZPW. fell parabolically lower. I’m a social security recipient and for the first time took out a pay day loan early in July. If President Obama follows through on his statement that he will cut off Social Security and Veteran payments, if there is a deadlock on the debt ceiling, will I still be held responsible for repayment of the loan if my pay day does not come in? Perhaps I will be $200 wealthier come the first of the month, and the pay day loan company, poorer. If the social security check comes in I will repay the loan on the first of the month. Nevertheless, I know a default is coming on US Debt, and that there will be failed Treasury auctions, so I have cancelled as many ongoing obligations as possible, which includes the fitness club membership, leaving the land line phone bill, dental insurance, and Stockcharts.com subscription.
Energy Companies, XLE, Energy Service Companies, OIH, are cresting up into an Elliott Wave 2 High. Exxon Mobil, XOM, is cresting up into an Elliott Wave 2 High. Energy service companies, IEZ are double topping out.
Midcap growth stocks, JKH, and midcaps such as Harley Davidson, HOG, have been stellar performers.
The chart of Turkey, TUR, shows that it began to loose its seigniorage with the implementation of Quantitative Easing 2.
The chart of Thailand, THD, shows that it has gained seigniorage with the decline of the US dollar; its largely unregulated export and tourist economy, have created a safe haven investment for currency and stock investors.
There has been a strong rally in the shares of Carbo Ceramics, CRR,
2) ... Senate rejects House GOP bill to cut spending as House speaker says no deal with Obama
Jim Kuhnhenn of the Associated Press reports President Barack Obama and House Speaker John Boehner pressed their search on Friday for an elusive debt-limit compromise as the Senate rejected a House plan containing deep spending cuts and for the moment put aside a last-ditch fallback option. The 51-46 party-line Senate vote, and a decision by Senate Majority Leader Harry Reid, D-Nev., to cancel weekend Senate sessions, left unresolved the urgent issue of how to lift the nation's borrowing powers to avoid a first-ever U.S. default on Aug. 3. Boehner, R-Ohio, told reporters that, despite reports that Obama and he were closing in on a $3 trillion deficit-reduction deal, "There was no agreement, publicly, privately, never an agreement, and frankly not close to an agreement." The administration says the government is in danger of defaulting for the first time in its history after an Aug. 2 deadline, unless Congress raises the $14.3 trillion federal debt ceiling so the U.S. can keep borrowing enough to pay its bills.
Those in both parties want to couple a deficit-reduction provision to the debt limit increase. Obama and his Democratic allies want the package to include some tax increases while Republicans want to do it with spending cuts alone. The vote in the Democratic-controlled Senate blocked a House-passed bill, strongly backed by tea party factions, that would have required Congress to slash spending and pass a balanced budget amendment before raising the nation's borrowing powers. The House measure was a GOP conservative priority, although its passage in the Democratic-controlled Senate was never expected. Still, the narrow party line vote underscored the deep differences between the two parties on deficit reduction.
4) …Iran prez said pushing for nukes.
George Kahn of the Associated Press reports Iran's president wants to shed the nation's secrecy and forge ahead openly with developing nuclear weapons but is opposed by the clerical leadership, which is worried about international reaction to such a move, says an intelligence assessment shared with The Associated Press. That view, from a nation with traditionally reliable intelligence from the region, cannot be confirmed and contrasts with assessments by other countries that view Iranian President Mahmoud Ahmadinejad as relatively moderate on the nuclear issue compared to the country's Supreme Religious Leader.
5) … The Declaration of Greek Default begins the Era Of Regional Economic Governance and seigniorage, that is Moneyness, by the word, will and way of leaders.
The Leaders Default Agreement for Greece created a a Liability Union, that is a Debt Union, with the EFSF acting as a European Treasury providing seigniorage aid for Greece. It was President Sarkozy who pressed for and obtained the initiation of this European Monetary Fund, long opposed by Germans. The Telegraph reports: “The €159bn Greek bailout is bad news for German taxpayers, the country's influential Ifo think tank said. Hans-Werner Sinn, the head of the think tank and an open critic of the bailout, said: ‘Germany and France should not make policies that lead to the collectivisation of debts in Europe.’ He told Reuters TV: "The financial markets are reacting very positively to yesterday's agreements. As this is a conflict of apportionment between Europe's tax payers and investors, this is bad news for tax payers."
When the final Leaders’ Communique is released, I am sure we will be told of details that document strong euorpean economic governance implementing a Fiscal Union where Greece will be required to sacrifice its fiscal sovereignty, and accept competitiveness goals, read austerity, in as much as it has lost its debt sovereignty to the bond vigilantes, for its exercise of patronage and pork in its administration of socialism for over the last ten years. Greece has been a society totally closed off to meritocracy, as professions have been closed, and all jobs handed out by unions and paid by the government.
Sovereign Debt, in large part served as the seigniorage for the Age of Neoliberalism. While Sovereign Debt can be and will be declined to be repaid, it is a liability that can only be repudiated by a sovereign and independently ruling government.
In the Age of Neofeudalism, the coming Sovereign, will never repudiate the debt. Rather, He and the Seignior, will apply it to every man woman and child on planet earth, as their word will and way will be the basis of the new seigniorage.
Felix Salmon writes Greece Defaults and Consillium provides the Official Statement of Defaultt by the EU
Simon Kennedy and Jonathan Stearns Bloomerg report EU Leaders Offer $229 Billion in New Greek Aid. Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they erected a firewall around Spain and Italy and risked temporary default to lighten Greece’s debt burden.
After eight hours of talks in Brussels, leaders announced 159 billion euro ($229 billion) in new aid for Greece late yesterday and cajoled bondholders into footing part of the bill. They also empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after a market rout last week sparked concern the crisis was spreading. The fund can also aid troubled banks and offer credit-lines to repel speculators.
Tyler Durden in Zero Hedge relates The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP.
Bruno Waterfield and James Kirkup of the Telegraph relate European Deal Could Lead to Two-Speed Europe. European leaders thrashed out an agreement to save the stricken euro last night, with a major step towards a full economic union in which taxpayers in rich nations would cover the spending of poorer ones. The attempt to bail-out Greece and other struggling eurozone countries raised the prospect of a two-speed European Union with far closer ties between countries using the euro compared with those, such as Britain, that remained outside. Nicolas Sarkozy, the French president, said the deal had pulled the eurozone back from the brink of disaster and laid foundations for the creation of an EU “economic government”. He hailed it as “a historic moment” that would provide “bold and ambitious” plans for the creation of an embryonic EU treasury in the form of a European Monetary Fund. “By the end of the summer, Angela Merkel and I will be making joint proposals on economic government in the eurozone. Our ambition is to seize the Greek crisis to make a quantum leap in eurozone government,” he said. Even large euro countries such as Italy and Spain have seen their borrowing costs jump, raising fears of a financial crisis that could destroy the single currency. In response, eurozone leaders meeting in Brussels were drawing up a deal that would effectively use money from successful northern economies such as Germany to support the budgets of indebted nations in southern Europe. The agreement being discussed last night will hugely expand the role of a €440 billion (£389 billion) eurozone emergency bail-out fund, effectively creating a European Monetary Fund. The fund will be able to make “precautionary” loans to eurozone members, which they could use instead of borrowing money from the markets. It will also be able to make loans to recapitalise banks in the weaker economies and buy back government bonds from private investors.
Angela Merkel, the German Chancellor, was forced to cave in to French demands to significantly extend the role of the EFSF, to which Germany provides more than a quarter of the funding. German officials said Mrs Merkel was braced for a major political row as taxpayers in Germany recoiled from a step that will redistribute their money to highly indebted Mediterranean countries
Peter Tchir of TF Market Advisors writing in Zero Hedge relates.EFSF and Sovereign CDS Pitchbook Updates. The conclusion: The reality is that Germany, France, and the Netherlands, or maybe just Germany, will have to guarantee a combined 100% of EFSF issuance. The original EFSF made a lot of effort to protect EFSF loans from losses. All that those protections are gone and any rational investor has to assume the EFSF will have large mark to market losses up front and potentially large realized losses over time. You would only lend to EFSF if it was fully backed by the AAA members, and ideally Germany as they are the strongest and biggest by far. It remains to be seen if the entire market sees it this way, and if they do, will Germany be willing to provide that much support? I remain highly skeptical that this plan will ever be implemented in a meaningful way because it will place too much pressure on the AAA nations.
6) … A few reasons as to why ObamaCare discourages employers from hiring.
Neal Boortz relates in article The Economy Stalled After Obamacare Passed. Businesses with fewer than 50 workers have a strong incentive to maintain this size, which allows them to avoid the mandate to provide government-approved health coverage or face a penalty.
Businesses with more than 50 workers will see their costs for health coverage rise—they must purchase more expensive government-approved insurance or pay a penalty; and Employers face considerable uncertainty about what constitutes qualifying health coverage and what it will cost. They also do not know what the health care market or their health care costs will look like in four years. This makes planning for the future difficult. (Hat Tip to Between The Hedges)
7) … Politico reports Moody's warns 5 states of downgrade; this as Municipal Bonds, MUB, raced to an all time high today in a type of short sell covering.
8) … Growing Wealth Disparity seen in rising New York real estate prices.
Oshrat Carmiel and Ashwin Seshagiri of Bloomberg report: “Home prices in New York’s Hamptons, the Long Island resort towns favored by summering Manhattanites, increased 4.2% in the second quarter from a year earlier as buyers opted for more expensive beach properties. The median price of homes that sold in the quarter rose to $937,500 according to Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. Thirty-nine percent of all sales completed in the Hamptons and Long Island’s North Fork were for houses priced at $1 million or more, the second-highest market share for such properties in three years.”
9) … An inquiring mind asks, Will President Obama declare martial law and rule by Executive Order? Associated Press reports Prospects for a debt breakthrough seem dim. Prospects for a breakthrough in debt talks Saturday at the White House appeared dim as Republican leaders issued defiant statements ahead of their meeting with President Barack Obama.