Financial market report for September 21, 2011
1) ….The Too Big To Fail Banks, RWW, such as Bank of America, BAC, Citigroup, C, and Wells Fargo, WFC, led stocks lower today, as announcement of Operation Twist disappointed investors as they don’t see any stimulus benefits of the Fed’s actions. Residential Reits, REZ, lost their seigniorage today. Mortgage REITS, REM, such as Annaly Capital Management, NLY, fell strongly reflecting the diminished lack of returns from securitization of GSE debt. Real Estate, IYR, fell strongly reflecting a broad base of stock market failure. Gold mining stocks, GDX, disconnected from the price of gold once again, and turned lower with stocks. Freeport McMoran Copper and Gold FCX, led the Morgan Stanley Cyclicals Index lower. Copper Miners, COPX, Steel, SLX, Metal Manufacturing, XME, Energy Service stocks, OIH, fell strongly reflecting diminished returns from growth. Transports, IYT, and Industrial, IYJ, fell strongly confirming that Kondratieff Winter is definitely underway. Today’s collapse in stock value was accentuated by debt deflation, that is, currency deflation, as the world’s currency, DBV, and emerging market currencies, CEW, fell strongly lower on competitive currency deflation. Country stocks falling lower included the following:
Base Metals, DBB, fell on lower stock values. Timber, CUT, and Oil, USO, fell lower on lower growth prospects. Commodity Currencies, CCX, took commodities, DJP, lower. Agricultural commodities, JJA,, fell lower.
World stocks, ACWI fell 2.9%, and World Small Caps, VSS, fell 2.7%. The credit intensive Russell 2000, IWM, fell 3.7%. European Financials, EUFN, fell 3.0% and Emerging Market Financials, 3.3%. Zero Hedge reports Bank Downgrades Jump The Atlantic: S&P Cuts Numerous Italian Banks
There was a rush to perceived safety in longer duration US Government bonds, as the US Federal Reserve announced that it will extend the average maturity of its holdings of securities. Under Operation Twist, The Fed intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. The Flattner ETF, FLAT, rose to a new high, 57.15, reflecting a flattening of yield curves, as the 30Y Treasury yield, $TYX,, has gone all the way back to January 2009 levels, at 3,039%, propelling the 30 Year US Government Bond, EDV, 5.9% higher to 119.75, and TMF to 68.82. The 10 Year US Government Note, TLT, rose 3.1% to 116.66.
One investment strategy is to own STPP and use margin to sell FLAT short; and to own TMV and to use margin to sell TMF short.
2) … Matthew Saltmarsh of the NYT reports Troika Inspectors To Return To Athens To Analyze Data Next Week Before More Austerity Measure Are Imposed As Greek Government Tries to Sell New Belt Tightening Measures
3) … Between The Hedges reports
Bloomberg reports Greece makes good progress in talks with Troika to get loan payment. “We acknowledge that our fiscal data and economic structures are a problem for the euro area, which we are determined to tackle once and for all.”
Bloomberg reports Debt Crisis infects companies via bank loan costs Banks in Spain and Italy are curbing loans and charging customers more as aftershocks from the sovereign debt crisis drive their own borrowing cost higher. “They can’t lend what they don’t have, I suppose,” said Francesc Elias, the owner of Bomba Elias, a pumps and filters maker near Barcelona, which shelved a 100,000-euro ($144,000) plan to open a Bahrain office when it couldn’t get an affordable bank loan. “The banks are very clever about finding new ways to charge us more.” Spanish and Italian government bond yields surged to euro- era records this quarter as Greece struggled to avoid default, driving the cost of insuring against nonpayment by the region’s banks to a record and making it harder for them to sell bonds. Spain pays 5.35 percent for 10-year money, up from an average of 4.07 percent in the first half of 2010, while Italy pays 5.65 percent compared with a 4.05 percent average last year. As a result, banks such as Banco Santander SA, Spain’s biggest lender, are passing higher funding costs on to their customers. UniCredit SpA, Italy’s biggest lender, said on Aug. 3 it’s being more selective about who it lends to and levying higher rates. One out of three companies asking for credit in the second quarter period didn’t get it or obtained less than they asked for, according to Confcommercio, an Italian retailers’ lobby group. “The cost of financing our current activities has increased significantly,” said Riccardo Illy, chairman of Italian coffee maker Gruppo Illy SpA. “We don’t have any problems accessing credit because we’re large enough, but we know many businesses that are having trouble because banks’ requirements have become increasingly stringent.” Spanish banks including Santander and Bankia SA are shrinking their loan books after being pummeled by a collapse in credit demand for real-estate and surging loan defaults. Santander’s Spanish lending shrank an annual 7 percent through June, mirroring a trend in the Bank of Spain’s data that show a 1.9 percent annual drop in lending to companies and individuals. Lending at Bankia, the third-biggest lender formed from a merger of seven savings banks, was down 2.3 percent from December. Banks face a dilemma when trying to pass on increased funding costs in full because they risk driving more borrowers into default, said Barclays Capital’s Pascual. Bad loans in the Spanish banking system are near 7 percent of total lending, the highest since 1995. As lending slides in Spain and banks struggle to finance themselves, the outlook for growth is worsening, said Antonio Ramirez, an analyst at Keefe Bruyette & Woods in London. “It’s the negative feedback loop between what’s happening to the sovereign and the effect on banks and the economy,” said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. “To a large extent, the problems facing Spanish lenders also apply to Italy.” As financing costs rise in Italy, analysts have started revising down their growth estimates for that country.
Bloomberg reports Lending Curbs Help Propel Commercial Paper Yields to Record: China Credit. Companies in China face record interest rates on short-term debt as curbs on lending force them to rely on commercial paper to pay back loans. The average yield on top-rated, one-year corporate notes has risen 101 basis points since June 30 to 5.9 percent, and is poised for the biggest quarterly increase in China bond data going back to 2007. High yields reflect “the market concern about liquidity and also the view that monetary policy may not change in the short-term,” said George Weisi Tan, who oversees about 300 million yuan as head of bond investments at Fortune SGAM Fund Management Co. in Shanghai. “It’s hard to get a loan from the bank these days.” Banks are demanding near-record interest rates to lend to one another for six months or more, Shanghai interbank rates show. The Shibor rate on six-month yuan loans was 5.2968 percent yesterday, after reaching 5.3093 percent on July 14, the highest level since the daily fixing was introduced in October 2006. Five-year credit-default swaps on China’s sovereign bonds rose 49 basis points this quarter to 133 basis points yesterday, the highest since April 2009, according to CMA.
Bloomberg reports Europe Banks Have $410 Billion Credit Risk: IMF. The European debt crisis has generated as much as 300 billion euros ($410 billion) in credit risk for European banks, the International Monetary Fund said, calling for capital injections to reassure investors and support lending. Political squabbling in Europe over ways to fight contagion and delays in implementing agreed measures are raising concerns about the risk of defaults by governments, the IMF said. Banks in turn face “funding challenges” because of investor concern about their potential losses from government bonds they hold, with some relying heavily on the European Central Bank for liquidity, it said. “A number of banks must raise capital to help ensure the confidence of their creditors and depositors,” the IMF wrote in its Global Financial Stability Report released today. “Without additional capital buffers, problems in accessing funding are likely to create deleveraging pressures at banks, which will force them to cut credit to the real economy
MarketWatch reports StanChart Warns on China's Local-Government Debt. Bank’s China chief: Up to 80% won’t be able to cover debt service. The majority of local-government financing vehicles cannot repay their debt principle and interest, and are putting an enormous strain on local governments, said Stephen Green, head of Standard Chartered Greater China research department, in a forum on Saturday.
CNBC reports Swift Exit From Emerging Market Currencies. The other shoe has finally dropped: emerging market currencies have followed emerging market equities into the global financial storm.
CNBC reports Japan Exports Disappoint, Could Weaken Further. Japan's exports rose in the year to August at less than half the pace expected as a global economic slowdown, a strong currency and Europe's sovereign debt crisis put the country's own recovery increasingly in doubt. Exports rose 2.8 percent in August from a year earlier, much less than a median forecast for an 8.0 percent annual increase, Ministry of Finance data showed on Wednesday.
Washington Post reports US Building Secret Drone Bases in Africa, Arabian Peninsula, Officials Say. The Obama administration is assembling a constellation of secret drone bases for counter terrorism operations in the Horn of Africa and the Arabian Peninsula as part of a newly aggressive campaign to attack al-Qaeda affiliates in Somalia and Yemen, U.S. officials said. One of the installations is being established in Ethiopia, a U.S. ally in the fight against al-Shabab, the Somali militant group that controls much of the country. Another base is in the Seychelles, an archipelago in the Indian Ocean, where a small fleet of “hunter killer” drones resumed operations this month after an experimental mission demonstrated that the unmanned aircraft could effectively patrol Somali territory from there.Boris Volkhonsky writes on The World of Drone Warcraft
4)… GolemXIV relates Europe bank debt report in lurid detail
5) … I recommend that one purchase a EuroIntelligence subscription as it provides the best reporting and analysis. It relates CDU, CSU and FDP agree on Bundestag’s involvement in EFSF decisions.
Angela Merkel’s CDU, the Bavarian CSU and the liberal FDP yesterday agreed on how the Bundestag should be involved in all decisions of the EFSF, Frankfurter Allgemeine Zeitung and mass circulation daily Bild report. As a general rule the German representative may only vote for or abstain on all decisions that touch the parliament’s budgetary rights if there is an explicit decision by the Bundestag. In cases of particular urgency or confidentiality this decision may be taken by a small group of members of the parliament’s budget committee, which must comprise at least one representative from each parliamentary group. In these cases the group presumably convenes via telephone or video-conference and is empowered to take decisions on the Bundestag’s behalf. Without an explicit decision the German EFSF representative has to veto EFSF decisions as soon as they engage budgetary rights of the German parliament. The deputies of Merkel’s coalition think they have even gone further than the recent constitutional court ruling required them to go.
6) .. Illargi in The Automatic Earth in Reckless Abandon relates I'm not even sure if it's right to claim that it's unique to our societies, but it's certainly something like a token sign. We do a lot of stupid and useless things, but this one is right up there with the cream of the crop of them.
For days now, the entire financial world seems to be holding its breath waiting for Ben Bernanke to issue a statement on what his Federal Reserve aims to do next, a statement to be delivered today, Wednesday, around 2.15 PM EDT.
What makes this so remarkable is that it should be clear to anyone with a pulse and some control of any of their senses left, that Bernanke's upcoming speech is completely inconsequential for more than a very short and fleeting moment in time. The Fed can't save our economies or banks from the upcoming recession slash depression anymore than it can send a rocketship to Andromeda.
The Federal Reserve is impotent when it comes to saving the economy, even if it tries with all its might not to show it. It flaunts its fictional capacity and ability to come up with new and creative well-calculated measures to influence everything from A to Z like once upon a time the emperor flaunted his new clothes. And no matter how badly any and all of its previous measures have failed, the vast majority among us still praises the subtly elegant materials and their dream-provoking shine. We don't want reality, we want to believe.
Well, neither QE1, nor for that matter any other of the Fed's measures of the past few years, have done anything at all to stop housing prices from plunging, to make sure people get hired again, or to make our children's futures look less bleak. And it has failed to accomplish all of this while spending on and lending to the global financial system some $10-$20 trillion in American "wealth", public funds.
It’s simply not true that with different policy decisions, the day could be saved.
Right now, the only time when one of the leading political and/or regulatory bodies in the world volunteers to give you a glimpse of reality, it's to extort ever and even more of your money. The IMF came out with a dire report this week, but only so it can argue for more stimulus (which simply means more money being transferred from the public to the private sector). The IMF represents the financial sector; it does unequivocally not represent you, no matter what claims it may make to the contrary.
It's nonsense to claim that what benefits the financial sector would automatically benefit you as well. The opposite is true. To understand and process that fact, however, you will first need to figure out that the entire financial sector is indeed bankrupt. It doesn't seem to be, perhaps, at first glance, but it's not all that hard to see it for what it is.
All you need to do is imagine where Wall Street banks, and the world's other main banks, would be today if not for the money they have already received from the public trough. They wouldn’t be anywhere is where they would be; they would no longer operate as going concerns. And then, even with all that money, they have lost 70-80-90% of their market values.
The Fed sets interest rates, right? Wrong. It does nothing of the kind. All Bernanke can do is set a Fed funds rate, close his eyes, fold his hands and pray it’ll stick for more than 5 minutes. That's the extent of his control over interest rates. In reality, the markets set interest rates.
Obviously, the ECB would love to keep Italy's borrowing rates down, it would save it a huge headache. Problem is, it can't: the markets currently demand a much higher rate for Italian debt than the ECB, or Rome, like. What the IMF wants the ECB to do is buy huge piles of Italian debt, while in the process de facto crippling the free market system.
But until and unless Italian debt is purged, the ECB would have to buy all of it, including all the upcoming dozens of billions in rollovers, or Italy would need to go elsewhere anyway. The ECB may save the day, but that's all: it can't even save the week that day is in.
7) … After the soon coming global economic collapse, credit will come by diktat … and European Leaders will meet in summit and waive national sovereignty to establish a Super European Government.
The European Economic Government will be based upon a Fiscal Union with a leader serving as President of the EU.
It’s inevitable that a global economic collapse will come out of the European sovereign debt and banking crisis, as well as today’s fatal blow to the world’s financial and banking system by Operation Twist.
Credit will come by diktat; as banks are integrated into the government, that is nationalized. Lending will flow to industries that sustain regional infrastructure and economic needs. Banks will be known as the Government Bank or Gov Bank for short.
In 1974, the 300 luminaries of the Club of Rome proposed a solution to the current growth and investment crises we are currently mired in. They foresaw that the Milton Friedman Free To Choose Regime would fail from derisking, deleveraging, and disinvesting; and to avoid political and economic chaos, regional economic government would arise.
Robert Wenzel writes “the facts I am about to state are off the wall, and further proof of my contention that Fed chairman Ben Bernanke is a mad scientist playing with the United States economy”. The Fed Chairman’s experiment was an accelerant of disinvestment,, causing world stocks, ACWI, to fall 2.9%, and World Small Caps, VSS, 2.7%. The credit intensive Russell 2000, IWM, fell 3.7% and caused.a collapse in Banking, KBE, Financials, XLF, European Financials, EUFN, and Emerging Market Financials, EMFN.
They foresaw that the clay of democracy would yield to the iron of diktat, and that by necessity economic and political structures be integrated regionally, for security and prosperity in all of the world’s ten regions. A Ten Toed Government, that being the Beast Regime of Neoauthoritarianism, is coming to rule mankind.
Credit is defined and it is based upon trust, which is rapidly evaporating. We see in today’s news that credit liquidity is evaporating and that state corporatism is growing. Mike Mish Shedlock writes Euro Flight Continues: Lloyd’s of London Pulls Euro Bank Deposits; Dollar Swap Premium Highest in 3 Years. Major mistrust of European banks continues. Since the ECB will not publish banks needing emergency cash, all banks might be considered suspect. Then again, it's hard to keep stories quiet, and most know which banks have received emergency funding. There is no reason to trust European banks and that is exactly what Lloyd’s of London and Siemens have decided.
Under Neoauthoritarianism, Austerity and Debt Servitude will be a way of life as Dr. Eric Toussaint writes The Debt Crisis in the European Union: Austerity for Life.
Euro Intelligence in its for fee news letter writes, Wolfgang Münchau foresees a pending catastrophe as the Economic Rubicon has been crossed. “Wolfgang Münchau argues in his column in FT Deutschland that the eurozone crisis has now dragged on for so long, and has become so toxic that is now very unlikely to be resolved. Once the crisis hit Italy, followed by an absolutely inadequate policy response of the Italian government, the crisis has reached a point of No return. Italy is too big to save with the current set of instruments, including ECB bond purchases, and in the absence of a credible programme of eurobonds, he concludes that a breakup of the eurozone must now be considered as a probable scenario. The question is now whether and how the EU can survive such a cataclysmic event.”
Libertarians perceive themselves to be sovereign individuals; that they are their own persons; that they cut their own path and make their own destiny.
But fate is operating. The 1974 Call of the Club of Rome is clarion, that is ringing, clear and distinctive, and carries an authoritarian imperative. The global tectonic political and economic plates have shifted and a global authoritarian tsunami is on the way. Destiny will flow so that European Leaders will meet in summit and waive national sovereignty to establish a Super European Government, based upon a Fiscal Union, with a leader serving as President of the EU, that individual is very likely to be Herman Van Rompuy, as he orchestrated the original Greek bailout, and who the Daily Mail reports as saying, the age of the nation state is over and the idea that countries can stand alone is an ‘illusion’ and a ‘lie’. State corporatism, that is statism, will rule in all of mankind’s seven intuitions and through out all the world’s ten regions, as the Beast Regime grows all more powerful through diktat. Freedom and choice are mirages in the Neoauthoritarian Desert of the Real.
Bruce Krasting writes in Zero Hedge WH and Fed sleeping together Bernanke shot back at the Republicans today. He's facilitating a mortgage deal that will help the White House. The Republicans are going to fire right back.
Stocks: FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, FXY, AUNZ, DBV, CEW, CCX, YAO, IDX, GAF, BRAQ, VNM, FXI, EWZ, EWD, EWS, ENZL, RSX, TUR, CNDA, EWC, EEB, EWG, EWW, EWU, EWA, EGPT, EWY, INDY, EWL, EZA, VGK, ECH, XME, FCX, IYT, IYJ, DBB, CUT, USO, NLY, RWW, BAC, C, WFC, REZ, REM, IYR, GDX, DJP, JJA, ACWI, VSS, EWM, EUFN, E