Financial market report for October 4, 2011
1) … News reports reveal credit is evaporating and that banks are seen as becoming more shaky.
David Mchugh of the AP writes from Frankfurt, Germany, ECB Seen Increasing Credit For Shaky Banks The European Central Bank could offer 1-year credits to shore up banks .The European Central Bank could boost emergency credit offerings on Thursday to help shore up a banking system that has come under increasing pressure from the eurozone debt crisis.
Economists say the meeting in Berlin is much less likely to result in a cut in the bank's benchmark refinancing rate from the current 1.5 percent, though it is not completely ruled out. The eurozone's troubled banks will be a major topic at the meeting and at the subsequent news conference, the last such appearance for bank President Jean-Claude Trichet before his eight-year term expires Oct. 31 and he hands over to successor Mario Draghi.
Many economists expect the bank will open its credit window wide, as it did during the financial crisis that followed the 2008 collapse of U.S. investment bank Lehman Brothers. Analysts say the central bank could decide to offer unlimited credit for six months or a full year, and could also buy asset-backed securities known as covered bonds from banks.
That would provide support to European banks that are having difficulty borrowing normally from other banks. Banks are reluctant to lend because they fear Greece could default on its government bonds and cause losses that mean other banks would not pay them back.
The European Central Bank already offers short term credit for as long as 3 months, but extending the loan period means banks are less vulnerable to market turmoil.
Protecting banks would be a key challenge if financially troubled Greece defaults on its debts, either in a coordinated way with eurozone governments' approval or a disorderly default in which the country simply runs out of money
According to data compiled by Bloomberg.Natsuko Waki of Reuters reports Justin Urquhart Stewart, director at Seven Investment Management, says "Politicians have to stand behind these banks -- whether you call it state support, nationalization, you have to keep the financial system working otherwise we will end up with another credit crisis."
Bloomberg reports Dexia, BNP Resist Greek Losses Three Times Worse Than Booked. Dexia SA, BNP Paribas SA and Societe Generale SA are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism they haven’t written down the bonds sufficiently. While most banks have marked their Hellenic debt to market prices, a decline of as much as 51 percent, France’s two biggest lenders and Belgium’s largest cut the value of some holdings by 21 percent. The practice, which doesn’t violate accounting rules, may leave them vulnerable to bigger impairments in the event of a default. The three firms would have about 3 billion euros ($4 billion) of additional losses if they took writedowns of 50 percent.
Mike Mish Shedlock reports Belgium's largest lender about to become first casualty of Greek default.
Bloomberg reports Dexia Board Asks Chief Mariani to Resolve 'Structural Problems'. Dexia SA, Belgium’s biggest bank by assets, said its board asked Chief Executive Officer Pierre Mariani to take steps to fix the company’s “structural problems” after Europe’s sovereign debt crisis worsened. “In the current environment, the size of the non-strategic asset portfolio impacts the group structurally,” Dexia said in an e-mailed statement today. “This is why the board of directors asked the CEO, in consultation with the relevant governments and the supervisory authorities, to prepare the necessary measures to resolve the structural problems.” The bank didn’t elaborate on its plans
A Bear Stearnsing of Dexia is underway as Tyler Durden reports the French and Belgian Finance ministers as saying "As part of the restructuring of Dexia, the Belgian and French, in conjunction with central banks will take all necessary measures to ensure the safety of depositors and creditors.”
The Telegraph reports Greece Default Not An Option, Says Jean-Claude Juncker. If Greece doesn't receive the €8bn slice by mid-October, the debt-ridden country will be unable to pay pensions and salaries and eventually go bankrupt. Mr Juncker said after a meeting of eurozone finance ministers that he expected a decision about the loan to come sometime in October. And European Monetary Affairs Commissioner Olli Rehn strongly suggested that Athens would get the loan, saying the country's spending cuts and other efforts "go a very long way to meeting the conditions" set by its creditors.
Reuters reports Greece Falls Into 'Death Spiral': Rising Debt, No Growth Greece teeters on brink of bankruptcy: Greece revealed today that it is in more dire economic straits than envisioned when a €110 billion bailout deal was agreed to this summer, sparking concern that Europe’s debt crisis could deepen.
FAZ reports Euro-area countries unable to pay their debt should be restructured under procedures that would force them to partially renounce some of their sovereign rights, German Economy Minister Philipp Roesler proposed in a letter to the finance ministry. The newspaper said Roesler, who heads German Chancellor Angela Merkel's Free Democratic coalition ally FDP, wants his proposals included in the draft contract of the European Stability Mechanism, or ESM. According to the FAZ, the ESM would only provide financial aid if creditors agree to "take an appropriate share" in the rescue effort and both parties should face material disadvantages if they fail to reach an agreement (Hat Tip to Between The Hedges)
Reuters reports Canadian Finance Minister Jim Flaherty says in Sun TV interview: "Ultimately the whole world would be affected if there were a bank meltdown, a credit crunch, coming out of Europe. So this is a serious situation and it's been serious for quite some time. It's getting worse because of the continued uncertainty."
The Bespoke Investment Group Blog relates risk this way: Trouble In Financial Land. Below we highlight the year-to-date change in credit default swap prices for the major banks and brokers around the world. Unfortunately, a gain in CDS prices is a bad thing, as it means that default risk has gone up. And it has gone up significantly for financial companies once again this year. For the majority of financials, CDS prices are still not as high as they were during the financial crisis, but they're starting to get close.
2) … The European banks will be nationalized, and a European Bank, a common treasury and a fiscal union will emerge through a credit and financial system collapse.
When credit dies, money dies. Then Free Enterprise dies. Economic life and activity will be based upon promoting the security and prosperity of the region state. Credit and lending come through diktat of the regional sovereigns and regional seigniors, that is regional bank overlords, and funding is channeled through stakeholder committees to organizations which are key to the ongoing needs of the region.
Regional economic government is simply the effective working of the 1974 Clarion Call of the Club of Rome for regional economic government. In the EU, the European banks will be nationalized, and a Eurozone Bank, a Common European Treasury and a European Fiscal Union will emerge in a United States of Europe, led by a European Sovereign, possibly Herman Van Rompuy, and a European Seignior, possibly Jean Claude Trichet, or Jean Claude Junker or Mario Draghi, whose word, will and way serves as the basis of seigniorage, that is moneyness. The people will be amazed by the new money provided by diktat, and follow after it, giving their full allegiance to it.
It will be much the same in the North American Continent. Based upon the Security and Prosperity Partnership, the SPP, and the Security Perimeter Talks, a North American Union will emerge where Canada, Mexico, and America will be merged into a regional economic government known as CanMexAmerica. Regional economic stakeholders will be appointed will be appointed by the Treasury Secretaries of Canada, Mexico and the US, and come from think tanks such as the CFR. Robert Wenzel reports Treasury Secretary Geithner will attend the Council on Foreign Relations' annual dinner where he will participate in a moderated discussion on the global economy with CFR President Richard Haass.
Companies such as pipeline company, TransCanada, TRP, and Molycorp, MCP, now a rare earths producer will be favored for credit.
The WSJ reports Canada's Fin Min Says Greece Debt Needs To Be "Reordered" And indeed it will be reordered. The entire Eurozone will be reordered around regional framework agreements, where leaders meet in summits announce regional framework agreements which waive national sovereignty and effect a Eurozone coup d etat to institute a true regional economic government, as called for by the Angela Merkel and Nicolas Sarkozy August 2011 Joint Communique.
In Greece, the constitutional right to not be terminated from a state job will be abrogated by diktat if necessary. The New York Times reports Greeks Move to Slash State Jobs for 30,000 Opening Sunday’s cabinet session, Mr. Papandreou indicated that the priority should be guaranteeing Greece’s solvency and position in the euro zone. “Important decisions, which need to be taken on a European level, depend first and foremost on us,” Mr. Papandreou said. “We need to show we are dedicated to achieving our goals.”
I say, fade any Austrian Economics aspirations for Free Enterprise, any Neoliberal hopes for Choice, and any Libertarian desires for Freedom. Such things are mirages on the Neoauthoritarian Desert of the Real, as Neoauthoritarianism is rising to replace the Milton Friedman Free To Choose Floating Currency Regime. Diktat is replacing Choice. Sovereign Leaders and Bankers are replacing Sovereign Individuals. The Beast Regime of Authoritarian Rule and State Corporatism is rising to govern in all of mankind’s seven institutions and ten world regions.
3) ...Wealth can only be preserved in gold and to some extent in silver.
Tyler Durden reports Indian Silver Demand Leads to Supply Issues, Capacity Stretched, Higher Premiums. Asian Bullion Demand Remains Strong Physical demand for silver remains high and is being reflected in a slight uptick in premiums. GoldCore have seen continuing coin and bar demand and physical buyers are not being deterred by the latest sell off on the COMEX market. Those buying silver continue to expect silver to rise to $50/oz and many expect silver to rise to over $140/oz which is the real record (CPI inflation adjusted) high from 1980. Demand from western buyers remains minimal as buyers remain a contrarian few with the majority of investors and savers having no allocation to silver whatsoever. However, this is not the case in Asia where both gold and silver are held in far higher esteem and appreciated for their wealth preservation qualities. Indian demand has been very significant in months and has accelerated in recent days after the sell off and tentative signs of a bottoming.
4) … Commodity Currencies, CCX, turned lower again today on a continuing falling Australian Dollar, FXA, and a falling Canadian Dollar, FXC.
Bloomberg reports Aussie Weakens to One-Year Low as RBA Signals Interest-Rate Cut Possible.
5) … Commodities are seen at a critical must hold level.
Corey Rosenberg in chart article Charting The Breakdown And Key Level In The CRB Index relates “The commodities along with equities have fallen sharply since their respective May 2011 market peaks.
Let’s take a look at the breakdown in the CRB (Commodity) Index and note the critical confluence reference support level upon which the index sits currently. At present, the index trades at the same level as when the Federal Reserve initiated its “Inflation-Creation” program known as QE2 (Quantitative Easing). That’s important to know as we turn now to the weekly chart to see why the 300 level is a very important index reference level.”
I relate that Commodities, DBC, were inflated by Ben Bernanke’s QE2, and then suffered quantitative easing exhaustion in May, and then debt deflation, that is currency deflation, in August and September as commodity currencies, CCX, fell lower. The failure of commodities reflects failure of the seigniorage of US Federal Reserve ZIRP to maintain growth, and the termination of the Milton Friedman Free To Choose Floating Currency Regime. Currencies, Commodities, and Stocks are all falling lower into the Pit of Financial Abandon, as Kondratieff Winter bears down upon humanity. The Age of Leverage that came from the securitization of debt and carry trade investing and produced prosperity for many is over. The Age of Deleverage has arrived with the failure of the world central banks to provide seigniorage as is seen in world government bonds, BWX, falling lower, and the failure of carry trade investing seen in the Optimized Carry ETN, ICI, falling lower.
Bloomberg states Commodities Drop to 10-Month Low as Debt Crisis May Limit Demand. Commodities declined to the lowest level in 10 months as European policy makers were still to reach an agreement on the region’s rescue fund, deepening concern that slower economic growth may curb demand for raw materials. The Standard & Poor’s GSCI Spot Index fell as much as 2.2 percent to 572.92, the lowest level since Nov. 26, and was at 578.59 at 3:42 p.m. in London. Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France. “We are seeing continuing pressure across the commodities complex from these concerns about the global growth prospects,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney. “The markets are universally bearish.” The S&P GSCI Index has shed 24 percent since reaching an almost three-year high in April, meeting the common definition of a bear market, as investors cut holdings of commodities amid slower economic expansion.
6) … World stocks, ACWI, and World Small Cap Stocks, VSS, rose from an oversold condition. European Financials, EUFN, fell weakly lower, on fears of sovereign default as Associated Press reports Greece has weeks left before bankruptcy. The European shares, VGK, trade up 2% today.
Neoliberalism featured the Age of Leverage. But Neoauthoritarianism features The Age of Deleveraging, where unwinding carry trade investing and derisking sends currencies and natural resource stocks downward into the pit of financial abandon. An example is Canadian shares, EWC, CNDA, and ENY, all lower today on unwinding carry trade investing, quantitative easing exhaustion, and global growth failure. Another example is Australian Stocks, EWA, and KROO, which fell heavily yesterday. It’s as Mike Mish Shedlock writes The much ballyhooed "hard currency" play is not something you plow into and forget about. He continues, The idea that exports will keep the Australian economy out of recession is complete silliness. Moreover, it was not commodities that kept the Australian economy humming during the great financial crisis, but an enormous property bubble that has now burst.
Derisking is seen in yesterday’s fall in China stocks, YAO, CHII, CHIM, CHXX. CHIX, and HAO. The chart of CHIX, CHIM, CHXX, CHII and HAO shows their recent disinvestment, which comes from the exhaustion of quantitative easing, and failure of China credit and banking.
Emerging market titans, EMT, fell lower today on plummeting hopes of natural resource development.
Coal, KOL, rose as Small Cap Energy, PSCE, Energy, XLE, and Energy Service, OIH, and IEZ, traded up on a volatile price of oil, USO today.
Gold mining stocks, GDX, and GDXJ, and silver mining stocks, SIL, fell lower, disconnecting further from their underlying commodity.
Premium Reits, KBWY, turned lower again evidencing the failure of rent seigniorage.
Chile, ECH, once known as the Capital of the Free To Choose Floating Currency Regime, fell lower as investors acknowledged the death of Neoliberalism.
The chart of shipping, SEA, and fertilizer, SOIL, show the oversold, yet precarious position of stocks, which could easily fall lower.
The Small Cap Pure Value, RZV, the Russell 2000, IWM, the Small Cap Consumer Discretionary, PSCD, Small Cap Info Technology, PSCT, Semiconductors, XSD, Homebuilders, XHB, Banks, KRE, manifested bullish engulfing today; but this does not necessarily indicate a move up; their rise was actually an opportunity to go short near the end of trading as in a bull market one buys in dips, but in a bear market one sells in rises.
The 10.8% rise in manufactured housing company, CVCO, presented a good short selling opportunity near the end of today’s trading as did the rise in the office supply firm EBF and office products company DLX. Other short selling opportunities of the day were found in the processing products firms PLT... TKLC … PLCM and SGK. And another short selling opportunity in appliance manufacturers IRBT …and NPK … And in small tools SSD … LECO … TTC and SNA … And in regional brokerages AI … SWS … GLCH … SF … RJF and KCG …The rise in wood products manufacturer DEL made for an enticing shorting opportunity. The rise in printing services firm CGX may have made for a good selling opportunity. Much can be said the same for construction fixture firm DW. One could say Sears, SHLD, is in breakout, but its rise is more likely a short selling opportunity. Bank service company FISV manifested as a short selling opportunity, much the same can be said banks FITB … TRST … MSFG … CCBG … FBNC … UBSH … UVSP …. LBAI …. UBSI … and IBOC. and solar company AEIS. Semiconductor company RMBS is in breakout, or perhaps false breakout, and should be considered for short selling. Small Cap Industrial Company ROLL is rising strongly and may be shortable at this time. Consumer Discretionary POOL rose strongly. Small Cap Value Company, DECK, rose strongly suggesting the opening of a short selling opportunity. Small Cap Energy World Fuel Services, INT, rose strongly presenting a short selling opportunity.
7) … This may be a good time to go short US Treasuries, which are supported by China. Any success in passing legislation that compels the Obama administration to take action, if it concludes that a country is currency manipulator, will give bond vigilantes an entrance, to call interest rates such as $TNX, and $TYX, higher on US government debt. The 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX is in an Elliott Wave 3 up, and is resting slightly above its 200 day moving average of 0.63, meaning that interest rates are on the way.
Since May, 2011, US Federal Reserve ZIRP policy has only been good for US Treasury holders invested in ZROZ, EDV, and TLT. The failure of Federal Reserve seigniorage is seen in the chart of ACWI:ZROZ and VTI:ZROZ.
One could hold TMV and use margin to go short TMF, or hold SBND and use margin to go short LBND, as the Flattner ETF, FLAT, shows a bearish harami, as does ZROZ, EDV, and TLT.
The WSJ reports House Speaker John Boehner said it was dangerous for lawmakers to pass legislation aimed at addressing concerns about China’s currency, relating it goes well beyond Congress’s responsibilities: “It’s a pretty dangerous thing to be moving legislation through the U.S. Congress forcing someone to deal with the value of a currency,”
Bloomberg reports China Says U.S. Risks Trade War With Protectionism Bill. China said the U.S. risks triggering a trade war through legislation before the Senate that would punish the Asian nation for what lawmakers say is the undervaluation of its currency, the yuan. The People’s Bank of China said it “regrets” the Senate vote yesterday to consider the bill, and the Foreign Ministry said the measure would violate World Trade Organization rules, in statements today on their websites. The bill is aimed at letting American businesses seek duties on Chinese imports to make up for the weak currency.
8) … A Global Eurasia War is coming soon … its a good reason to buy and take physical possession of gold.
One can obtain the details of the soon coming Global Eurasia War in the newly Released E-Book from Michel Chossudovsky and Global Research Publishers Towards a World War Three Scenario
9) … The former age was characterized by The Spirit of the Cat in the Hat … the current age is characterized by the Spirit of Wilding.
John Giuffo of Forbes relates that Detroit, MI is No. 1 on the list of the most dangerous cities in America
Stocks: ACWI, VSS, GLD, SLV, VGK, EUFN, FXE, KBE, KRE, IAT, FLAT, TMF, LCII, SHLD, FISV, FITB, MSFG, FBNC, UBSH, UVSP, LBAI, IBOC, AEIS, RMBS, ROLL, POOL, DECK, INT, LBND, SBND, ZROZ, EDV, TLT, CCX, FXA, FXC, DBC, BWX, ICI, EWC, CNDA, EWY, EWA, KROO, SF, RJF, KCG, YAO, CHII, CHIM, CHXX, CHIX, HAO, EMT, PSCE, XLE, OIH, IE