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I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.
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  • World Stocks Fall Lower In August As Neoliberalism Dies And Neoauthoritarianism Is Born Out Of A European Default Union  0 comments
    Aug 6, 2011 3:14 PM | about stocks: TUR, ACWI, EEM, EEB, VSS, CEW, DBV, FXY, FXE, EMFN, EWJ, FXA, EWA, AUNZ, ENZL, SZR, EZA, FXS, EWD, BZF, EWZ, CYB, YAO, ICN, INDY, FXRU, RSX, FXC, CNDA, VGK, FXF, EWL, IDX, COPX, OIH, IEZ, GDXJ, GEX, HAP, URA, XLE, ALUM, PSCE, KOL, SLX, CHIM, CHIE, EWI, EWG, EWO, EWQ, EUFN, PSCD, XRT, XSD, JKH, PSP, CARZ, IWM, IWO
    Financial market report for August 5, 2011

    1) … World stocks, ACWI, World Small Stocks, VSS, Emerging Market Stocks, EEM, and the BRICS, EEB, fell sharply lower this week on the exhaustion of quantitative easing, contagion of the European Default Union,  and unwinding of carry trade investments, as the world major currencies, DBV, emerging market currencies, CEW, turned lower on competitive currency deflation.

    The daily chart of the Yen, FXY, shows that it has completed an Elliott Wave 5 Up.


    The weekly chart of the Euro, FXE, shows that it entered an Elliott Wave 3 Down in May, 2011.


    Emerging Markets Financials, EMFN, turned sharply lower this week on falling emerging market currencies.

    Japanese Yen, FXY, -2.0, EWJ, -6.7
    Australian Dollar, FXA, -4.7, EWA,  -11.6; Australia is a natural resource country; it fell lower on failing natural resource investments.
    New Zealand Dollar, BNZ, -4.2, ENZL, -6.5
    South African Rand, SZR, -3.1,  EZA, -7.1
    Swedish Krona, FXS, -2.8, EWD, -12.5; Sweden is a highly leveraged investment
    Brazilian Real, BZF, -2.6, EWZ, -10.9; Brazil fell lower as it is goosed up
    Chinese Yuan, CYB, -0.3, YAO, -8.9
    Indian Rupe, ICN, -1.7,  INDY, -7.2
    Mexico Peso, FXM, -2.2, EWW, -8.5
    Russian Ruble, XRU, -2.5, RSX, -2.5
    Canadian Dollar, FXC, -2.5, CNDA, -11.1; Canada fell lower on failing natural resource investments
    The Euro, FXE, -0.6,  VGK, -8.6; European investments fell lower on the formation of a default union
    Emerging Markets, CEW, -1.4,  EEM, -9.6
    Swiss Franc, FXF, 2.7,  EWL, -6,.5

    2) … The Milton Friedman Free To Choose Floating Currency Regime know as Neoliberalism died the week ending August 5, 2011, it is being replaced by the Diktat of Neoauthoritarianism.  
    An inquiring mind asks is there a way out of a European default union? ..… To give confidence to the markets on Black Thursday, the Open Europe reports that the ECB resumed its bond buying programme for the first time since March, by purchasing Irish and Portuguese bonds. But Jens Weidmann, President of the German Bundesbank, opposed the renewal of the bond buying programme, along with other members of the ECB Governing Council. Additionally, the ECB acknowledged the slowdown in the European economy and the increasing risk of contagion, suggesting that it will not increase rates in the near future. Italian and Spanish yields fluctuated wildly yesterday but have continued to increase to record highs again. The spread of Belgian and French borrowing costs over German bunds also reached record highs. French President Nicolas Sarkozy will hold an emergency teleconference with German Chancellor Angela Merkel today and Spanish Prime Minister José Luis Rodríguez Zapatero Friday afternoon.
    Open Europe’s Mats Persson was quoted in the LA Times saying, "In terms of a way out for the eurozone, it looks very, very tricky, because none of these countries, particularly Italy, have any strategy for growth and competitiveness".

    And an inquiring mind asks further, will the European Monetary Fund, that is the European Treasury, provide seigniorage, that is moneyness for the EU?  ….. Open Europe continues, European Commission President José Manuel Barroso sent a private letter to eurozone leaders which urged for “a rapid re-assessment of all elements related to EFSF [the eurozone’s temporary bailout fund]” and suggested leaders should quickly assess “how to further improve the effectiveness of both the EFSF and the ESM [the eurozone’s post-2013 permanent bailout fund] in order to address the current contagion.” This has been widely reported to imply that the overall size of the EFSF should be increased, to allow it to cover Italy and Spain. In a slightly ironic attach, Barroso blamed “undisciplined communication” from eurozone leaders for making the crisis worse. The letter was heavily criticised by German Vice-Chancellor Philipp Rösler and the German Finance Ministry, with both saying the debate came at a bad time and that adequate measures had only recently been agreed.

    Open Europe reports Corriere della Sera Telegraph report that Italian prosecutors yesterday seized documents from the Milan offices of credit rating agencies Moody’s and S&P, as part of an investigation into the impact of evaluations on Italy made by the two agencies over the last weeks on the current financial markets turmoil . And And Open Europe reports on the growing awareness of the European Default Union. In an interview with La Stampa, Nobel prize winner economist Robert Mundell has said, “Italy is not yet in the same situation as Greece, but almost. As Europe can’t afford to be caught unprepared if faced with the necessity to intervene, it would be good if the necessary plans and resources were prearranged now.”
    In Il Sole 24 Ore, columnist Carlo Bastasin looks at the ECB’s decision to resume its bond-buying programme and warns, “The ECB can buy time, at most. It can’t remedy Italy’s deficit of political initiative, which appeared evident also during the parliamentary debate on Wednesday. On that occasion, the Prime Minister [Silvio Berlusconi] blamed the markets for misjudging Italy. The answer from yesterday is clear: the markets can misjudge for longer than Italy…can remain solvent.” In El País, economic analyst Juan Ignacio Crespo argues that the measures announced by the ECB yesterday “are too little, too late.”  
    Writing in the FT, Investment Editor James Mackintosh argues, “By administering medicine – more liquidity and the resumption of Irish and Portuguese bond purchases – [the ECB] warned the patient of the dangers, while failing to provide enough anaesthetic…But it is time for the ECB president to realise Europe’s leaders are incapable of timely action. The ECB must use its strongest medicine.”
    Gillian Tett draws parallels between the eurozone crisis and the 2008 financial turmoil in the US, concluding, “Nobody can deny that there is a rising sense of déjà vu, to use a phrase from France, the core of the eurozone. The Gods of Finance might chuckle. Then weep.”
    In Handelsblatt, columnist Thomas Hanke criticises European Commission President José Manuel Barroso for his recent declarations on the eurozone debt crisis, arguing, “Barroso could have chosen a better time to boost his ego…We have to ask ourselves if this is still about the eurozone or about Barroso’s fears of being ousted as [European Council President Herman] Van Rompuy’s competences will probably be extended.”
    Handelsblatt: Hanke Le Monde: Editorial La Stampa: Emmott Corriere della Sera: Manca La Stampa: Mundell Il Sole 24 Ore: Bastasin Il Sole 24 Ore: Forquet Repubblica: Mauro Economist  FT: Tett FT: Editorial Telegraph:Warner Telegraph:Evans-Pritchard CityAM: Heath Economist Economist 2  Economist 3 Le Figaro: Fischer El Pais: Crespo Times: editorial Times: King WSJ Heard on the Street WSJ: Mattich BBC: Peston BBC: Flanders FT: Mackintosh

    Open Europe blog writes France steps up calls for ‘Eurozone President’: is this really a priority?

    Between the Hedges summarizes from Bloomberg the following news items ...Trichet Bond Firepower Faces Test as Rout Withstands ECB Buying. European Central Bank President Jean- Claude Trichet may be forced to step up his fight against the sovereign debt crisis after a resumption of bond purchases yesterday failed to halt a rout in Italy and Spain. Over opposition from Germany’s Bundesbank, Trichet yesterday sent the ECB back into bond markets as yields on Italian and Spanish yields soared, threatening the ability of the euro region’s third- and fourth-largest economies to borrow. As the sell-off continued, traders said the ECB purchased only Irish and Portuguese securities, suggesting the central bank is reluctant to put up the funds needed to tame a crisis it says governments are responsible for fixing. “The ECB is being dragged unwillingly back to the table, having tried originally to palm off responsibility for restructuring the euro zone to governments,” said Peter Dixon, an economist at Commerzbank AG in London. “If the ECB is serious about playing its part in holding the euro zone together, then it’s going to have to spend a considerable sum.” The ECB, which ceased buying bonds four months ago, was forced back into action after governments failed to convince investors that a package of new measures agreed to last month will prevent the crisis from spreading. The ECB may be hesitant to intervene in Italian and Spanish markets, which according to Bloomberg data have a combined 2.2 trillion euros ($3.1 trillion) worth of outstanding bonds, for fear of starting an engagement it can’t get out of. The ECB “would have to deploy more cash to have an impact on the Spanish or Italian yields than in the case of small periphery paper,” said Elwin de Groot, senior market economist at Rabobank Nederland in Utrecht. “Secondly, markets would expect a certain commitment from the ECB to follow through.” Italian 10-year bond yields rose to 6.19 percent yesterday from as low as 5.92 percent earlier in the day, while the Spanish equivalent soared to 6.27 percent from 6 percent. Gilles Moec, co-chief European economist at Deutsche Bank AG in London, said that by shunning Italian and Spanish debt the ECB was putting pressure on those governments to “get their house in order.” “It’s showing it can buy, but only those whose governments have made an effort,” he said. While that may have been the case, the ECB succeeded in making the problem “even more intractable,” said David Owen, chief European economist at Jefferies International Ltd. in London. “The contagion is spreading. If spreads widen out significantly, I think the ECB would have to step in.”

    Bundesbank President Jens Weidmann voted against a resumption of the bond program, according to an official familiar with the discussions. Weidmann was not the only Governing Council member opposed to the move, the official said on condition of anonymity. Yesterday’s response may have been “the best the ECB could do because the Governing Council could not agree on a shock-and- awe response,” said Peter Westaway, chief European economist at Nomura International Plc in London. “If so, this is concerning.”

    Global Banks Tumble on Concerns About Growth, Sovereign Debt. European banks dropped to a two-year low and led a plunge in financial stocks around the world on growing fear about faltering growth and the creditworthiness of countries such as Ireland and Italy. The 46-member Bloomberg Europe 500 Banks Index dropped 4.2 percent to its lowest since April 2009. The KBW Bank Index of 24 U.S. financial stocks slid 5.3 percent in New York, the biggest percentage decline since July 2010. “The biggest issue that the European banks have is that they are undercapitalized,” said Daniel Alpert, managing partner at Westwood Capital LLC, a New York-based investment bank. “While U.S. banks don’t have a tremendous exposure to the sovereign debt in Europe, the bottom-line issue is these banks in Europe are important parts of the worldwide financial system.” “The ECB’s program is virtually useless, because it’s not big enough to stomach Italy or Spain,” said Ronny Rehn, a bank analyst at KBW Inc. in London. “Politicians need to get ahead of the curve and stop reacting to events when it is too late.” Spanish and Italian banks have been struggling to borrow money for more than 30 days’ duration over the past two months, according to analysts at Morgan Stanley in London. “The funding markets are drying up and short-term funding is getting shorter,” Rehn said. The Bloomberg European Banks index has slumped 11 percent in the last five trading days, with Intesa SanPaolo, Lloyds, and France’s Societe Generale SA all shedding more than one-fifth of their stock market value. European officials are trying to put a firewall around Italy and Spain on concern that they will have to follow Greece, Ireland and Portugal in seeking bailouts. The cost of insuring Italian debt surged to a record today, with credit-default swaps rising 18 basis points to 384, according to CMA in London. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers rose 6 basis points to 205, according to JPMorgan, nearing the 210 basis-point record of March 2009. Bank of New York Mellon Corp., the world’s largest custody bank, said today it will start charging institutional clients a fee for “extraordinarily high” cash deposits to stem a flight of capital into the safety of bank deposits. Other banks that have experienced dramatic increases in their cash deposits may follow, said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, who said he’d never seen a bank charge for taking institutions’ deposits. In other signs of investors’ aversion to risk, the yield on the two-year U.S. Treasury dropped to a record low and rates on Treasury bills fell to zero. “Bank funding remains stressed for southern Europe and remains a key source of risk for bank earnings, ability to lend and a drag on economic recovery,” Morgan Stanley analyst Huw van Steenis said by telephone today. While the provision of six- month money is “at the margin helpful, it is not of sufficient term to really offer game-changing help to re-open term funding markets, which is the focal point of the stress.” Trichet said the ECB has also resumed bond purchases after it stopped buying the bonds of distressed euro-area governments 18 weeks ago.

    Citigroup analysts led by Giada Giani described the decision to re-open the program for Portuguese and Irish debt as “half-hearted” and liable to leave Italian and Spanish bonds “highly vulnerable to further market turbulence.” “Trichet could have done more to calm the markets,” said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. “The lack of political leadership and an unwillingness to take things seriously is hurting the market.”

    Portugal's New Austerity Fails to Bring Down Yield: Euro Credit. Two months into the job, Portugal’s Prime Minister Pedro Passos Coelho is deepening the budgetary pain without feeling any gain. Swept to office June 5 on the back of a 78 billion-euro ($111 billion) rescue sought by his predecessor, Passos Coelho has announced a tax charge and spending cuts together worth more than 1 percent of gross domestic product to ensure he meets the targets set out in the aid package. All he’s got in return are higher borrowing costs as contagion spreads to Italy and Spain. “There was and there will be a contagion effect,” Andre Pinheiro, who helps oversee 100 million euros of assets at Orey Financial SA in Lisbon, said in a telephone interview. “Our recovery depends on their recovery, and our yields won’t decline if they don’t recover.”

    Treasuries Poised for Biggest Weekly Advance Since Fed Rate Cut in 2008. Treasuries headed for their steepest weekly gain since the last time the Federal Reserve cut interest rates in 2008 as stocks tumbled around the world on concern economic growth is slowing. Bonds surged from Japan to Australia to Germany this week as investors sought the relative safety of government debt. The TED spread, the difference between what lenders and the U.S. government pay to borrow for three months, widened to 26.9 percentage points, the most in a year. “Hot money is flowing into U.S. Treasuries in a flight to quality,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $37.9 billion and is a unit of Japan’s second-largest bank. “There’s a flight from riskier assets into bonds. All bonds are benefitting.” U.S. 10-year yields were little changed today at 2.41 percent as of 10:56 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 3.125 percent note maturing in May 2021 traded at 106 5/32. The yield dropped 38 basis points this week, the most since the period ended Dec. 19, 2008, according to data compiled by Bloomberg.

    Oil Heads for Biggest Weekly Drop Since May. Oil fell in New York, heading for the biggest weekly decline in three months and wiping out its gain for the year, on speculation fuel demand will falter as the U.S. economy weakens and the European debt crisis worsens. Futures dropped as much as 1.1 percent after slumping 5.8 percent yesterday. “The market is nervous, people are panicking,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney, who predicts oil in New York will average $100 a barrel this year. “Everyone is liquidating and moving into cash and that’s understandable because every other commodity market is under pressure.” Crude for September delivery dropped as much as 95 cents to $85.68 a barrel in electronic trading on the New York Mercantile Exchange at 11:38 a.m. Sydney time. The contract yesterday tumbled $5.30 to $86.63, the lowest settlement since Feb. 18. Prices are down 10 percent for the week and 6 percent in 2011.

    U.S. Housing Market Slump Deals Double Blow to Small Businesses.

    Indonesia Growth Spurs World's Priciest Stocks as BRICs Retreat. In a year when stocks around the world are getting cheaper, Indonesian shares are growing more expensive as surging profits lure Asia’s biggest investors. The Jakarta Composite Index’s 11 percent advance this year lifted its valuation to 15 times estimated profit, the highest level among 45 benchmark stock gauges tracked by Bloomberg and a record 36 percent premium to the MSCI All-Country World Index. Price-earnings ratios fell in every other market, declining by an average 15 percent, data compiled by Bloomberg show.

    Forbes reports Brazil Stocks Index Plummets: The Worst Performance Among The World's 20 Largest Equity Markets.

    EconomicPolicy Journal writes The High Cost of Japanese Foreign Exchange Intervention
    Japan has likely sold a record 4 trillion yen ($50.6 billion) so far in the currency market in solo intervention that it began on Thursday and continued in overseas markets, the Nikkei newspaper said, reports Reuters. Tokyo last stepped into the market on its own in September last year, when it spend around 2 trillion yen. The dollar briefly rose above 80 yen on Tokyo's action in the currency market but has since fallen back to around 79.30 yen. These interventions don't work unless they are done on a regular, almost daily basis, like China was doing. But the ultimate domestic price inflationary consequences ends the programs because of social unrest of the type developing in parts of China

    Mike Mish Shedlock questions the success of QE 2 stating, Over the past 12 months, average hourly earnings have increased by 2.3 percent. The consumer price index for all urban consumers (CPI-U) was up 3.4 percent over the year ending in June. Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed. Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers. The official unemployment rate is 9.1%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6. While the "official" unemployment rate is an unacceptable 9.1%, U-6 is much higher at 16.1%. Things are much worse than the reported numbers would have you believe. Moreover, the unemployment rate is barely better than it was a year ago. It would actually be worse than a year ago were it not for people dropping out of the labor force.”

    And Mr. Shedlock relates, “Marketwatch reports 40,000 positions are targeted; Swiss firms hit by soaring franc. A running tally of planned job cuts by European banks reached around 40,000 Tuesday, little more than halfway though earnings season, as firms that failed to control costs or were over-optimistic about growth make the deepest cuts. Most of those cuts are in Europe but a slowdown in Europe means a slowdown in US exports. Moreover, one can expect similar cuts in the US as soon as banks are forced to mark assets to market. HBSC, Credit Suisse, Goldman Sachs, Morgan Stanley Announce Cuts. The New York Times reports HSBC to Trim 30,000 Jobs in Cost-Cutting Move. August 1, 2011: HSBC, the big European bank, said Monday that it was cutting 30,000 jobs, as part of a wide-ranging cost-cutting program to improve profitability.HSBC is the latest bank to announce job cuts amid regulatory uncertainty and global economic weakness. Credit Suisse said last week that it planned to eliminate 2,000 positions, or 4 percent of its jobs. Goldman Sachs and Morgan Stanley are also reducing their head counts. That 30,000 is part of the 40,000 reported above.”

    Mr. Shedlock continues, “Please consider Foxconn to replace workers with 1 million robots in 3 years. Taiwanese technology giant Foxconn will replace some of its workers with 1 million robots in three years to cut rising labor expenses and improve efficiency, said Terry Gou, founder and chairman of the company, late Friday. The robots will be used to do simple and routine work such as spraying, welding and assembling which are now mainly conducted by workers, said Gou at a workers' dance party Friday night. The company currently has 10,000 robots and the number will be increased to 300,000 next year and 1 million in three years, according to Gou. Foxconn, the world's largest maker of computer components which assembles products for Apple, Sony and Nokia, is in the spotlight after a string of suicides of workers at its massive Chinese plants, which some blamed on tough working conditions.The company currently employs 1.2 million people, with about 1 million of them based on the Chinese mainland.”

    And Mr Shedlock continues further, “Manufacturing Jobs Vanish in "Creative Destruction". People blame China for stealing jobs. While that is partially true, the bigger picture is "creative destruction". Many manufacturing jobs are simply vanishing period. They no longer exist. Robots and technology do the work. Flashback August 27, 2009: Creative Destruction. [My friend] BC writes: See chart 5 illustrating the conditions persisting during Japan's slow-motion, deflationary, debt-deleveraging depression from the mid-to-late '90s when the Japanese Boomer demographic drag and persistent price deflation took hold. I strongly suspect that we will experience a similar pattern between private and public debt/GDP. We could see bank lending/GDP return to the 30% long-term average area from today's peak of 50-51% (and bank real estate loans/GDP of 27% vs. the long-term average 10-11%). If so, we are likely to see little or no bank lending growth, which in a debt-money economy means little or no GDP growth and further mass-consolidation of capacity and debt defaults or gradual pay down. Instead of "recovery" or "expansion", we should think in terms of a Schumpeterian Depression phase of the Long Wave trough, characterized as a debt-deflationary, deleveraging, demographics-induced no-growth regime. Long-term 3.3% real GDP growth has decelerated to ~1.5%, and I expect average growth from the '00 peak to the mid- to late '10s to decelerate further to 1% or below. The bottom line is that private debt-based growth is simply not possible, whereas any "growth" we do experience will be as a result of incremental government borrowing and spending, most of which will be in the form of war spending, bailouts, and social service transfers at very low GDP multiplier. Inquiring minds might be interested in concepts like Creative Destruction. The economic concept of creative destruction was first introduced by the Austrian School economist Joseph Schumpeter who wrote on Schumpeterian Depression Theory and Examples. Companies that once revolutionized and dominated new industries – for example, Xerox in copiers or Polaroid in instant photography – have seen their profits fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs. Wal-Mart is a recent example of a company that has achieved a strong position in many markets, through its use of new inventory-management, marketing, and personnel-management techniques, using its resulting lower prices to compete with older or smaller companies in the offering of retail consumer products. Just as older behemoths perceived to be juggernauts by their contemporaries (e.g., Montgomery Ward, FedMart, Woolworths) were eventually undone by nimbler and more innovative competitors, Wal-Mart faces the same threat. Just as the cassette tape replaced the 8-track, only to be replaced in turn by the compact disc, itself being undercut by MP3 players, the seemingly dominant Wal-Mart may well find itself an antiquated company of the past. This is the process of creative destruction. Other examples are the way in which online free newspaper sites such as The Huffington Post and the National Review Online are leading to creative destruction of the traditional paper newspaper. The Christian Science Monitor announced in January 2009 that it would no longer continue to publish a daily paper edition, but would be available online daily and provide a weekly print edition. The Seattle Post-Intelligencer became online-only in March 2009. Traditional French alumni networks, which typically charge their students to network online or through paper directories, are in danger of creative destruction from free social networking sites such as Linkedin and Viadeo. In fact, successful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialized by competing entrants.”

    And Mr Shedlock summarizes, “Creative destruction is a powerful economic concept because it can explain many of the dynamics of industrial change: the transition from a competitive to a monopolistic market, and back again. Creative destruction can hurt. Layoffs of workers with obsolete working skills can be one price of new innovations valued by consumers. Though a continually innovating economy generates new opportunities for workers to participate in more creative and productive enterprises (provided they can acquire the necessary skills), creative destruction can cause severe hardship in the short term, and in the long term for those who cannot acquire the skills and work experience.”

    Financial Times reports Resource Stocks Take Market's Full Impact which included:
    Copper Miners, COPX, -17%
    Energy Services, OIH, -14%
    Energy Services, IEZ, -15%
    Junior Gold Mining, GDXJ, -9%
    Alternative Energy, GEX, -11%
    Hard Asset Producers, HAP, -10%
    Uranium Mining, URA, -17%
    Energy Producers, XLE, -12%
    Wood and Paper Manufacturers, WOOD, -11%
    Aluminum Producers, ALUM,-14%
    Small Cap Energy, PSCE, -17%
    Coal, KOL, -17%
    Steel, SLX, -14%
    China Materials, CHIM, -10%
    China Energy, CHIE, -11%
    The following also fell strongly this week as  Neoauthoritarianism was born, yes born, out of investors fleeing European Investments when they became aware that a European default union has formed as Italy is now going to default and that its banks are insolvent.

    Italy, EWI, -10% Italian stocks are now down 21% ytd and are down 29% from their Feb. 17th 52-week high, Germany, EWG, -12%, Austria, EWO, -11%, and France, EWQ, -9%
    European Financials, EUFN, -9%
    Small Cap Consumer Discretionary, PSCD, -10%
    Retail, XRT, -9%
    Semiconductors, XSD, -12%
    Mid Cap Growth, JKH, -11%
    Small Cap Energy, PSCE, -17%
    Small Cap Consumer Discretionary, PSCD, -10%
    Leveraged Buyouts, PSP, -12%
    Automobiles, CARZ, -11%
    Russell 2000, IWM, -11%
    Russell 2000 Growth, IWO, -12%
    Gaming, BJK, -9%
    Airlines, FAA, -10%
    Shipping, SEA, -12%
    Design and Build, FLM, -12%
    Biotechnology, XBI, -16%
    Biotechnology, IBB, -13%
    Metal Manufacturing, XME, -15%
    Russell 2000, IWM,  -10%
    Small Cap Value, RZV, -9.5%
    Small Cap Growth, RZG,  -9.3%
    Indonesia, IDX, fell parabolically lower.


    As did Thailand, THD,


    Turkey, TUR, turned even more sharply lower.


    The chart of the week is Bank of America, BAC, which closed just above $8.00


    The fall lower in Preferred Shares, PFF, and the closed end mutual fund F&C Claymore Preferred Securities Income Fund, FFC, is just one of the many evidences of the failure of the seigniorage of Neoliberalism.

    Neoliberalism, featured the Milton Friedman Free to choose floating currency regime, and was characterized by democracy, respect for the rule of law, as well as constitutional law. It is being replace by Neoauthoritarianism, as called for by the Club of Rome in 1974, which will see sovereign leaders meeting in summits and work groups, to announce regional framework agreements, which waive national sovereignty and provide accords for regional economic governance.  In Europe, as nations lost debt sovereignty through the actions of bond vigilantes, Leaders announced a European Monetary Fund, a European Treasury, which creating a debt union. This week when investors became aware that a European default union has formed, they panicked, selling out of the European Financials and stocks..This induced a global currency sell off, and commenced commenced competitive currency deflation, putting the nail in the coffin to the Milton Friedman Free to choose floating currency regime; currencies will now be sinking, not floating. National currencies will fall in importance to the word, will and way of regional leaders, which will serve as the basis for the seigniorage of Neoauthoritarianism. An example of this is found in the Wall Street Journal report Sarkozy to Discuss Crisis with Merkel, Zapatero. French President Nicolas Sarkozy has been talking with the President of the European Central Bank over the last two days and will on Friday hold separate telephone talks with Spanish Prime Minister José Luis Rodriguez Zapatero and German Chancellor Angela Merkel, the French Presidency said late Thursday. And Business Insider reports Democrats Preparing For Another Stalemate Over The New "Super Committee".

    On Friday August 5, 2011, Mike Mish Shedlock writes “Zero Hedge does a good job at question 4 in his post Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt.  Basically what just happened an hour ago, is that the ECB gave a green light to use the SMP program to buy Italian and Spanish bonds. The problem is that the SMP's unsterilized purchasing capacity is de-minimis and it is merely a stopgap until the sterilized EFSF is enacted in its final form. The question is precisely what this final form will be: will it be €1.5 or €3.5 trillion? Nobody knows yet which is why Rehn refused to answer the question twice already today. And here is where Germans get angry, because explicitly they end up backstopping everyone in Europe! And the cost to them becomes 133% of their entire economy in a worst case scenario, which of course in this centrally planned world, is now guaranteed. So the ball is now basically in Germany's court. Without saying so explicitly, ZeroHedge just asked the question I asked yesterday: "Does Germany accept the monetization of foreign bonds at German taxpayer expense or does Germany leave the Euro?" “

    Soon of Götterdämmerung, that is a clash of the gods, specifically the bond vigilantes and the government leaders, a global economic collapse is going to occur, as the head of mankind’s most important institution, that being economic, investment, trade and banking will suffer a mortal wound, that is a stroke.
        
    Out of chaos, a powerful leader will emerge in the Eurozone, This New Charlemagne, will establish a type of revived Roman Empire, that is a Federal and Fiscal Union, where fiscal authority will reside at the core with leadership coming from Germany and France, and not at the periphery, that is the PIIGS.  The Sovereign, will be accompanied by a banker, The Seignior, whose authority will come from regional framework agreements that waive national sovereignty. Leading candidates for the soon to emerge Sovereign, the President of the EU, that is, the President of the Eurozone, are Herman Van Rompuy and Jean Claude Trichet, and Olli Rehn.

    Former citizens of sovereign nation states will be residents living in a region of global governance, as called for repeatedly call for by Mr.Jean Claude Trichet, president of the ECB, while speaking before the Council on Foreign Relations.  All living in Europe will be one, living as debt serfs, in debt servitude, under a One Euro Government where fiscal authority comes from the core, that is Germany and France and not at the periphery, that is the PIIGS.  And when the people  see the governance and  recovery provided by sovereignty and seigniorage of the Beast Regime, they will marvel, and follow after it, giving their allegiance to it. There will be no sovereign individuals as perceived by the anarcho capitalists, such as those at the Mises Institute; but rather only sovereign leaders. There is neither liberty nor choice, there is only fate. Liberty and choice is a mirage in the Neoauthoritarian Desert of The Real.  

    The destiny of mankind is for the Beast Regime of Neoauthoritarianism to enforce debt servitude globally, and to rule in all of mankind’s seven institutions, and govern in ten regions of global government through state corporatism. An example of this statism is the Ryan Rahilly, WSWS.  report that Private companies will begin managing care for most recipients of Medicaid by October 1, 2011. Yet this ten toed kingom, an amalgamation of iron diktat and clay democracy cannot and will not endure. Eventually, the Sovereign, will establish a One World Government, with the Seignior, establishing universal regulation of banking globally, as well as Global Seigniorage.

    The US, Canada, and Mexico, will effectively be ruled as one, by stakeholders appointed from government and industry. The North American Continent will be one of the ten regions of global government; the groundwork having been laid by Martin, Fox and Bush when they met at Baylor University and announced the Security and Prosperity Partnership of North America on March 23, 2005; and as Obama and Harper met for the Security Perimeter Talks in February 2011.  Paul Craig Roberts writing in Global Research documents The Decline and Fall of the American Empire.

    Love will grow cold as Kondratieff Winter continues. An inquiring mind asks who will care for those needing assisted living in the Age Of Deleveraging.


    Cooking oils, FUE, which are priced in dollars,will become precious, as they become ever more expensive as the world currencies fall lower.

    3) Peak Credit was likely achieved this week as Bonds, BND, traded lower on Friday August 5, 2011, as the yield curve steepened as is communicated in the Flattner ETF, FLAT, turning lower, which rose parabolically,.on a flattening of the yield curves, such as the 10 30 US Treasury Curve, $TNX:$TYX.

    The 30 10 US Sovereign Debt Leverage Curve, $TYX:$TNX, is definitely peaking out. Peak debt leverage is occurring, as the Interest Rate On The Benchmark US 10 Year Note, $TNX, is now below 2.56%, in what is a likely an Elliott Wave 2 Down, ready to spring up into a fatally destructive Elliott Wave 3 Up, as in fatally destructive to the world’s financial system.


    Peak Credit is seen in the ratio of BLV relative to LQD, BLV:LQD, topping out.just as it did when QE2 was announced at Jackson Hole in August 2010 by Ben Bernanke. Both the long duration corporation bonds, BLV, and the corporate bonds, LQD, are clearly topping. These were driven higher by a strong rise in the Zeroes, ZROZ, the 30 Year Treasuries, EDV, and the 10 Year US Government Bonds, TLT, on a short squeeze. Soon the bond vigilantes will be driving US debt lower as they call soveign debt interest rates higher globally. The chart Municipal Bonds, MUB, Mortgage Backed Bonds, MBB, suggests these are topping out..

    World Government Bonds, BWX, experienced debt deflation, that is currency deflation, turning parabolically lower on falling world currencies.


    Emerging Market Bonds, EMB, turned parabolically lower as well on falling emerging market currencies, CEW.



    4) … A Global Eurasia War centered in Syria is coming soon, possibly as Israel carries out a preemptive military strike to destroy Iran’s nuclear capability.
    Doug Noland wrote that neoliberalism was characterized by wildcat finance. Neoauthoritarianism is characterized by wildcat governance as one nation attacks another and even people within its borders.  

    Michel Chossudovsky relates in GRTV Video that Military Intervention in Syria Will Lead to Extended War. A global Eurasia War centered in Syria is coming soon, possibly as Isrel carries out a preempitve military strike to destroy Iran’s nuclear capability.

    5) Neoauthoritarianism will see the rise of regional kings
    Zainab Fattah of Bloomberg reports  “Saudi billionaire Prince Alwaleed bin Talal chose Saudi Binladin Group to construct a building in Jeddah that will replace Dubai’s Burj Khalifa as the world’s tallest tower.  Kingdom Tower will be more than 1,000 meters (3,281 feet) high and cost 4.6 billion riyals ($1.2 billion) to build.”

    6) … Neoliberalism was characterized by the Spirit of The Cat In The Hat; but Neoauthoritarianism is characterized by the Spirit of Wilding.
    The Bellingham Herald reports Off leash dog complaints rise in city as owners let pets play in cemeteries fouling graves, and the Associated Press reports Police training eyed after Fullerton beaten man dies.  

    7) … Doug Nolan writes on destabilizing speculation
    “Thinkers” of things economic have for a long time debated the role profit-seeking speculators play in the marketplace.  Milton Friedman famously contended that there really wasn’t such a thing as “destabilizing speculation.”  On the contrary, he and others viewed speculators as a positive force in the markets - whose “buy low and sell high” profit motive tended to exert a stabilizing force.  Today, European policymakers believe they are under attack from speculators determined to bring down their debt markets and currency regime.  At this point, I doubt there are many that would downplay the integral role speculation plays in our dangerously unstable global markets.
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