Financial Market Report for the week ending September, 23, 2011
1) … Competitive currency deflation heralds the end of the Milton Free To Choose Floating Currency Regime
Doug Noland reports that the US Dollar, $USD, rose 2.5%. The Japanese yen, FXY, increased 0.3% unwinding carry trade investment as well as causing disinvestment from country stocks. On the downside,
the South African rand declined, SZR, 7.7%,
the New Zealand dollar, BNZ, 6.3%,
the Australian dollar, FXA, 5.6%,
the Brazilian real, BZF, 5.5%,
the Canadian dollar, FXC, 4.9%,
the South Korean won 4.7%,
the Norwegian krone 4.7%,
the Swedish krona, FXS, 4.6%,
the Singapore dollar 4.4%,
the Mexican peso, FXM, 3.8%,
the Swiss franc, FXF, 3.3%,
the Taiwanese dollar 2.7%,
the euro, FXE, 2.1%,
and the Danish krone 2.1%.
Bloomberg reports Worst Asia Currency Drop Since '97 Spoils Debt: The biggest monthly drop in Asian currencies since 1997 is prompting overseas investors to pull out of regional bonds, driving up yields. "Asia was considered a safe haven but recent foreign-exchange performance has caught the majority offside, both traders and corporates," Patrick Perret-Green, head of rates and foreign exchange at Citigroup Inc. in Singapore, said in an interview. "The risk remains for further redemptions." The Bloomberg-JPMorgan Asian Dollar Index slumped 4.3% this month, heading for its biggest loss since December, 1997, led by a 9.6% decline in South Korea's won.
Ben Bernanke’s Operation Twist, in addition to driving the interest rate on the 10 Year US Government Note, $TNX, to a record low, and sending the US Government Note, TLT soaring, has flattened the yield curve, and skewed investment to the longer duration bonds such as BLV, ZROZ, and the 30 Year US Government Bond, EDV, which have risen vertically. Corporate investors might consider investing in STPP and using margin to buy sell TMF short.
Doug Noland relates For going on three years now, the global leveraged speculating community has been positioning for ongoing dollar devaluation. The Washington policy playbook ensured massive Treasury issuance, zero rates, and unprecedented central bank monetization.
(This has caused gold to soar and M2 to rise M2 money supply declined $7.5bn to $9.584TN. Narrow money has expanded at a 11.9% pace y-t-d and 10.3% over the past year).
Chairman Bernanke essentially signaled to the hedge funds to go short the dollar and take the proceeds and acquire any higher-returning asset anywhere in the world. A strong case can be made that never in history has policymaking so incentivized global leveraged speculation. The leveraged players anticipated riding QE1 to QE15, not a policy course that would abruptly stop at QE2 and do a twist – especially not in the midst of a global crisis and de-risking environment. Anyway, post-2008 reflation stoked a massive flow of “hot money” that inundated the “developing” world, where domestic Credit systems were already firing on all cylinders. It was a historic boom – as well as a fundamental facet of my “global government finance bubble” thesis.
In a week when ECB President Trichet and Pimco’s El-Erian both referred to a global sovereign debt crisis, the scope of market tumult broadened meaningfully. Importantly, de-risking/de-leveraging dynamics intensified, and “developing” bond markets started to come unglued. Emerging debt spreads widened dramatically. In the (dislocating) In the Credit default swap market (CDS), for example, the cost to protect against default in Brazil surged 53 bps to 211, in Mexico 58 bps to 216, Argentina 185 bps to 1,052, South Korea 40 bps to 187, Poland 74 bps to 312, Hungary 79 bps to 531 and Russia 93 bps to 310. Commodities were also crushed, with silver down 26.3%, copper 16.6%, coffee 12.4%, crude oil 9.4%, sugar 9.7%, cotton 8.3%, and gasoline 8.2%. In “developing” currencies, the South African rand dropped 7.7%, the Chilean peso 7.2%, the Brazilian real 5.5%, the Mexican peso 3.8%, the Russian ruble 4.8%, the South Korean won 4.7%, the Singapore dollar 4.4%, the Indian rupee 4.4%, and the Polish zloty 3.9%. Basically, it was a slaughter, especially if you were leveraged.
The focus remains the unfolding Greek and European debt crisis. But there were further indications this week that the global leveraged players now face a heightened state of duress. You were absolutely hammered this week if you were short Treasurys (or U.S. dollar securities) against long positions in global risk assets. And there seems to be evidence of forced liquidations everywhere, as a 2008-like scenario comes into clearer view. The bursting of Bubbles in global leveraged speculation and the associated reversal of finance away from the “developing” world portends tightened financial conditions and growth headwinds for the post-2008 crisis global growth “locomotive.” This more than justifies the pounding that global cyclical stocks suffered this week.
I’ve been really worrying about the European banks; about global derivatives; about the unwind of leveraged trades throughout global markets. This week’s policy and market developments only added to my anxiety, while confirming my view that risks are greater today than in 2008
The WSJ reports Trichet: Sovereign debt crisis is global, Europe at epicenter. The chart of world government bonds, BWX, and EMB, shows the global government finance bubble has been priced.
2) … World stocks, ACWI , and VSS, together with commodities, DJC, fell terrifically lower on lack of growth prospects and opposition to the US Federal Reserve’s Operation Twist.
The 11.1% fall in the Morgan Stanley Cyclicals Index, $CYC, heralds the end to economic growth.
Fallers of the week included:
Some of the worst performing stocks over the last week have been natural resource stocks, ANR, HAL, FCX, CLF, all falling on the failure of growth prospects and exhaustion of quantitative easing. Natural Resource Mutual Funds such as Fidelity Select Mutual Fund, FSDPX, suffered a huge loss this week.
Base Metals, DBB, -11.75%, Oil, USO, -8.9%,and Agricultural Commodities, JJA, -8.2%
3) …. Bonds, BND, rose on a flight to percieved safety and on announcement of Operation Twist to buy longer maturity debts.
Sapna Maheshwari of Bloomberg reports: “The Federal Reserve’s ‘Operation Twist’ is failing to ignite the corporate bond market as its second round of quantitative easing did in November, showing the central bank may be running out of tools to revive the economy. Relative yields widened to a two-year high, a benchmark index of credit-default swaps rose and new sales ground to a halt after the Fed said it will buy $400 billion of long-term debt to cut borrowing costs and avert a recession.”
4) …. Gold, GLD, perceived by many to be the best long term storehouse of wealth fell 9.2%.
Reasons for its drop include, it had risen parabolically, it is a currency, margin calls at hedge funds,
5) … Indicators courtesy of Between The Hedges evidence a growing risk trade.
The ECRI Weekly Leading Economic Index Growth Rate -6.70% -60 basis points.
The Emerging Markets Sovereign CDS Index is surging 21.0 bps today to a record 285.9 bps
The 3-Month Euribor-OIS Spread is rising +4 bps to the highest since March 2009. The TED spread is at the highest level since July 2010 despite Europe's recent efforts
6) … A Sovereign will come to rule the Eurozone and provide a new moneyness, based upon diktat
The Associated Press reports Global leaders struggle to calm recession fears. The world's economic powers struggled on Friday to get on top of a European debt crisis that is threatening to dump the global economy back into recession.
WSWS reports El-Erian described Europe’s banking system as a “rapidly burning fuse” and warned that “Europe is getting very close to yet another tipping point.” He wrote that all signs point to “an institutional run on French banks” that threatens to see Europe “thrown into a full-blown banking crisis that aggravates the sovereign debt trap, renders certain another economic recession and significantly worsens the outlook for the global economy
Bloomberg reports Greece on edge of biggest insolvency 24 centuries after first city default. History’s first sovereign default came in the 4th century BC, committed by 10 Greek municipalities. There was one creditor: the temple of Delos, Apollo’s mythical birthplace. Twenty-four centuries later, Greece is at the edge of the biggest sovereign default and policy makers are worried about global shock waves of a insolvency by a government with 353 billion euros ($483 billion) of debt,five times the size of Argentina’s $95 billion default in 2001. “There is a monstrously large amount of uncertainty and a massive range of possibilities,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London.
Bloomberg reports Constancio Says Sustained ECB Bond Buying Would Delay Fiscal Fix. European Central Bank Vice President Vitor Constancio said sustained bond purchases by the central bank would only delay the fiscal adjustments that euro- area governments need to make. “The secondary market purchases are not, and cannot be used to circumvent the principle of budgetary discipline as a pillar of Economic and Monetary Union,” Constancio said at an event in Frankfurt last night, according to a text of his speech published by the ECB. “Sustained buying of government paper by the central bank would only postpone problems and delay the necessary fiscal adjustments, ultimately resulting in a build-up of inflationary pressures.” The comments underscore the ECB’s reluctance to continue buying the bonds of distressed euro-area governments to contain a sovereign debt crisis that’s now threatening to engulf Italy and Spain. He said the tensions are “in some respects” more broad- based than those seen in May last year, when Greece’s fiscal meltdown prompted the ECB to enter bond markets for the first time. “It is clear that sovereign debt challenges in individual euro-area countries, no matter their size, can undermine the stability of the euro area as a whole,” Constancio said.
Bloomberg reports France's BNP, SocGen Beat Retreat as Europe Debt Crisis Deepens. BNP Paribas (BNP) SA and Societe Generale SA, France’s two largest banks, are trimming about 300 billion euros ($405 billion) off their balance sheets as Europe’s deepening debt crisis threatens to make them too big to save. At the end of March, French financial firms had $672 billion in public and private debt in Greece, Portugal, Ireland, Italy and Spain, according to Basel, Switzerland-based Bank for International Settlements. That’s the biggest exposure to the euro-area’s troubled countries and almost a third more than German lenders. The four largest French banks have 5.9 trillion euros in total assets, including loans and bond holdings, or about three times France’s gross domestic product. “The banks are entering a slimming cure, which is forced by the sovereign crisis,” said Jerome Forneris, who helps manage $10 billion, including the two French lenders, at Banque Martin Maurel in Marseille, France
Bloomberg reports French, German bank credit default wagers soar. Also Breakout reports Awaiting the inevitable defaults & fireworks in eurozone crisis.
Seigniorage, which has been based upon carry traded investing, ZIRP credit liquidity, and securitization of GSE Debt, as well as sovereign debt has failed. Doug Noland provides the following Bloomberg reports.
September 20 – Dow Jones: “Sovereign debt woes rocking world financial markets are a global phenomenon and not just a European one, even though tensions are the most acute in the euro area now, European Central Bank President Jean-Claude Trichet said Friday. ‘What we are seeing now is the illustration of a global phenomenon, the global crisis of sovereign risk," Trichet told a conference in Washington on the sidelines of the annual meetings of the International Monetary Fund. ‘Forgetting that the euro zone is at the epicenter would be a mistake, but forgetting that this is a global phenomenon would also be a mistake.’”
September 20 – Bloomberg (Jeffrey Donovan): “Italy’s credit rating was cut by Standard & Poor’s, the country’s first downgrade in five years, as Greece’s worsening fiscal crisis fans concern that contagion will engulf countries such as Spain and Italy. S&P lowered its rating last night to A from A+, saying weak economic growth, a ‘fragile’ government and rising borrowing costs would make it difficult to reduce Europe’s second-biggest debt. The yield on Italy’s 10-year bond rose 8 basis points to 5.662%, 385 bps more than similar German debt. The cost of insuring Italy against default rose to a record.”
September 19 – Bloomberg (Emma Ross-Thomas): “Spanish debt is more expensive to insure than Baa2-rated Bulgaria, signaling the euro region’s fourth-biggest economy may not warrant its Aa2 credit status. Moody’s rates Spain two levels below AAA as does Standard & Poor’s at AA. Fitch has Spain at AA+, one from the top, even after the European Central Bank stepped in to buy its bonds to bring yields down from euro-era records. While Spain is ranked the same as Slovenia by Moody’s and S&P, costs to insure its debt against default are twice as much. ‘The rating agencies have got their head in the sand,’ Harvinder Sian, a strategist at Royal Bank of Scotland/ ‘Any country where you need the central bank in there supporting the bond market, and a AA rating, suggests something is very badly wrong with the ratings process.’”
September 20 – Bloomberg (Tony Czuczka): “A ‘wrong philosophy’ of economic growth at all costs has spurred countries to take on debt and must end if policy makers want to leave the crisis behind, German Chancellor Angela Merkel said. ‘If we understand the crisis properly, we have an historic chance to anchor a new culture of sustainable financial policy in Europe,’ Merkel said… That’s why Germany wrote debt reduction into its constitution and why ‘we are talking about budget consolidation’ as a crisis solution. ‘I’m convinced that what we are seeing is partly the result of a wrong philosophy over decades -- growth first, regardless of the cost… We can’t go on like that. This has to end.’”
September 21 – Bloomberg (Sandrine Rastello): “The European debt crisis has generated as much as 300 billion euros ($410bn) in credit risk for European banks, the International Monetary Fund said, calling for capital injections to reassure investors and support lending.” And September 22 – Bloomberg (John Glover and Ben Martin): “It’s been 2 1/2 months since a bank managed to sell a conventional bond in Europe’s public markets, the longest period without a deal ever and another example of the sovereign crisis choking off funding.”
Fate is operating to bring about the rise of a sovereign leader to rule the Eurozone. Destiny is operating destroy all economic life, such as Greek Socialism, as well as sovereign nation states.
Austrian Economist Mike Mish Shedlock wrote, "Germany, Austria, Finland, and the Netherlands, can break away", continuing a theme of breakup of the Eurozone, from many recent blog articles. His thinking is based upon a libertarian precept of sovereign individuals and free enterprise.
Christoph Dreier of WSWS writes the political implications of a Greek default on its debts are also being aired. In a summary of various scenarios for the eventuality of Greece failing to pay its debts, the BBC puts forward two alternatives. The first envisions Greece staying in the euro, with the following result: “Political turmoil: The Greek economy may face total collapse, with banks closed and the government unable to pay for basic public services. This is likely to cause massive civil unrest and a collapse of the government. Greece has already seen rioting and the takeover of government offices. The CIA has warned of a possible military coup.” The second alternative put forward in the BBC report deals with the eventuality of Greece exiting the euro. The consequence: global financial meltdown.
Greece is a socialist utopia which came via falling Greek sovereign debt interest rates between 1998, with the abandonment of the Drachma, and the use of the Euro, and the beginning of the European Sovereign Debt Crisis in 2009. Greece had a pony and cart economy before the use of the common currency. Its standard of living rose the most of all the Eurozone members, as investment in Greece and Greek Banks such as the National Bank of Greece, NBG, soared. At least one member of each household is employed by the government, and the Greek Constitution prohibits firing of state workers. Patronage and pork abound. Many occupations are unionized. There are for all practical purposes only socialist and communist parties. It’s a state worker system, a vote for jobs economy. Meritocracy is non existent. It is considered to patriotic to under report income and forgo paying taxes. There sees little legislative resolve for more austerity measures as Mike Shedlock reports Greek parliament vote on austerity postponed due to insufficient votes.
Associated Press reports Moody's downgrades 8 Greek banks Moody's downgraded eight Greek banks Friday, citing their exposure to their government's bonds and the deteriorating economic situation in the country as it struggles to convince creditors it's doing enough to get more bailout cash. Moody's Investors Service downgraded National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Agricultural Bank of Greece and Attica Bank by two notches from B3 to CAA2. Though downgrading Emporiki Bank of Greece and General Bank of Greece, which are majority-owned by France's Credit Agricole and Societe Generale respectively, to B3 from B1, Moody's said their parents continue to provide strong support. As a result, their ratings are three notches higher than the others. The agency also warned that further downgrades were possible by slapping a negative outlook on their ratings. National Bank of Greece, NBG, closed 2.7% lower for the week at $0.80.
Fate has two leading ambassadors, Angela Merkel and Nicolas Sarkozy, who called for true European Economic Government.in their joint Communique of August 2011. This soon coming Super European Government, is part of the ten toed kingdom of regional economic government,where ten kings will rule in each of the ten toes, that is the world’s ten regions. A beast regime of state corporatism and authoritarianism, will rise from the sea of humanity, to occupy in all of mankind’s seven institutions, and in all of the world's ten regions.
The 1974 Call of the Club of Rome, which is clarion, that is, clear, distinctive, and ringing, and which is also trumpeting an authoritarian imperative for regional economic government, which in the case of the Eurozone, implies that out of its sovereign debt and banking crisis, leaders will announce regional framework agreements, waive national sovereignty, disregardeful of any declaration by national supreme courts and constitutional law, and establish a fiscal union with authority over fiscal spending, as well as appoint a President of the EU, a sovereign ruler, who will be accompanied by a seignior, the word meaning a top dog banker who takes a cut, as presented by Elaine Meinel Supkis in History of seigniorage wealth.
The Iron Lady, Angela Merkel, is simply a herald and precursor of one greater, the Iron Chancellor, who will rise to power and rule in a type of revived roman empire. He will be one familiar with the scheme of regional framework agreements, which waive national sovereignty. His way must be fierce, as he will face a broad spectrum of angry people. He will speak for, and to, the Eurozone, and will provide seigniorage, that is moneyness, based upon diktat of austerity and debt servitude. The people will be amazed and give their allegiance to this new seigniorage,
Not only will moneyness come diktat, but credit as well. Lending will come from government to corporations deemed necessary to the prosperity and security of governments as well as regional groups. Bloomberg reports credit evaporation: “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 bps since June 30 to 5.9%, and is poised for the biggest quarterly increase in China bond data going back to 2007.” And Theophilos Argitis and Andrew Mayeda of Bloomberg report “Indian companies may turn to Hong Kong’s yuan bond market to raise funds at 40% the cost of top-rated companies at home after the South Asian nation eased borrowing rules. The government agreed for the first time last week to allow Indian companies raise as much as $1 billion of debt in the Chinese currency, bolstering the yuan’s challenge to the dollar as a funding currency.”
A leading candidate for the position of sovereign is 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’. By God’s will, State corporatism, that is statism, will rule in all of mankind’s seven intuitions and through out all the world’s ten regions.
As for freedom and choice, they are epitaphs on tombstones, of the former regime of Neoliberalism, aka the Milton Friedman Free To Choose Floating Currency Regime, which is being replaced by the beast system of Neoauthoritarianism. Eventually, the Beast Regime, being mired in the ten toes of clay of democracy, and the iron of diktat, will crumble. Then, the sovereign will gain the upper hand, and install a one world government, a one world bank, and provide global seigniorage,
CBS Dallas relates that the new age, is characterized by wilding and thievery: Hay the latest target for thieves as prices skyrocket