Financial Market Report for October 12, 2011
1) ...World stocks, ACWI, and the world small cap stocks, VSS, continued to rally early in the day in spite of the EFSF roadblock in Slovakia and in spite of the Bloomberg report that Europe’s debt crisis has reached “a systemic dimension” and needs to be tackled “decisively”.
European Central Bank President Jean-Claude Trichet told lawmakers in Brussels this week. Policy makers are debating how to recapitalize the region’s troubled banks as the sovereign debt crisis threatens to wreak havoc on balance sheets, undermining any recovery prospects. “We might end up in a situation similar to what happened in 2008” following the collapse of Lehman Brothers Holdings Inc. (OTC:LEHMQ), Andersson said. “And then of course there will be problems with liquidity.”
Late in the day came, Tyler Durden reports that The Market Slumps After European Banks Admit They Can't/Won't Raise Capital; Will Proceed With Asset Liquidations Instead. It was about an hour before the market close, which means it was time for the latest FT rumor. Only this time, unlike the 3 or so times before, the bazooka was not only a dud, it caused the inverse reaction of that intended, and led to a broad market sel loff. The reason: according to the FT (and certainly take this with a salt shaker if previous experience is any indication) is that European banks have balked at the prospect of recapitalizing at current levels ("Why should we raise capital at these [depressed share price] levels?” said one eurozone bank boss. The average European bank’s equity is trading at only about 60 per cent of its book value.) and instead will opt for asset liquidations. Now, whether they won't, or, as we have claimed since the first day we heard of the ludicrous "recap" rumors, they can't, simply because absent a massively dilutive rights offering, nobody in their right mind would lend to an industry which continues to be locked out of short-term funding markets for the 4th month in a row, is largely irrelevant. As a result no new money can come in: a key prerequisite to any European recapitalization plans. Of course, it is one for a "blog" to say that, it is something else for the FT to confirm it, even if it is a rumor. So what will banks do instead: why proceed with all out asset liquidation, and sell anything that is not nailed down. The strawman is that this is capital needed to fund the banks' requirements for higher capital ratios per Basel III and what not. The truth is that banks desperately need any capital just to operate as a going concern, forget some Basel Tier 1 ratio that will only be relevant in 2016. So yes: the bitter truth comes out - recap out; liquidations in, especially of USD-denominated assets. Next step: the realization that he who sells first, sells best. So yes, the "hope, idiocy and #mathfail" induced rally was fun while it lasted. And now it is back to reality.
From the FT: This radical approach, led by French banks BNP Paribas and Société Générale, would be copied by lenders across Italy, Spain and Germany, bankers said. “Why should we raise capital at these [depressed share price] levels?” said one eurozone bank boss. The average European bank’s equity is trading at only about 60 per cent of its book value. However, the banks’ “shrinkage” strategy is likely to prove controversial with politicians and regulators if it led to bankers lending less money to customers, jeopardising the eurozone’s fragile recovery, analysts warned. As was reported earlier, it was Barroso who had a massively disappointing session earlier today, in which not only did he not announce any of the specifics on the EU bank recap plan (because they do not exist!), but demanded that banks scramble to raise their capital ratio, in essence undoing everything that had been done to the moment. Mr Barroso stopped short of specifying the target ratio, but people close to the process told the Financial Times on Tuesday that the European Banking Authority, the regulator, is poised to set a higher bar than expected – a 9 per cent ratio of core tier one capital to risk-weighted assets for banks across the continent. A deadline of six to nine months would be set for forceable recapitalisation by governments, if banks have not reached the ratio under their own steam.
CNBC asks Have we reached a market selling top? Corey Rosenbloom in article A Valuable Lesson to Learn from 2010 Support Range Break provides the chart of the S&P, SPY, at resistance; note the hammer in the chart which suggests that a market top is coming in. And The chart of Italy, EWI, also shows a hammer as does Ford, F, providing additional evidence for a market top.
2) … Does the Merkel call for bank reorganization mean banks will be nationalized instead of recapitalized? Yes banks are going to be nationalized very soon in the Eurozone.
A factor leading to the nationalization of banks is that the Greek Finance Ministry is going on strike to resist the move for structural reforms, largely the announcement that the Constitutional right to not be terminated from employment is going to be abrogated. This Constitutional right is at the very center of Greek Socialism.
Tyler Durden reports Put A Fork In It: Greece Effectively Shuts Down As Finance Ministry To Begin 9 Day Strike. Remember the country that started it all yet was "so small nobody should worry about it." Well, it turns out its size was juuuuust right, and while the Eurozone is now fighting contagion fires everywhere up to and including the heart of the core (thank you most-bailed-out-by-the-Fed-bank Dexia), Greece still has yet to see any benefits whatsoever from all the so called bailouts, including the 5 previous tranches from the US taxpayer funded IMF. Well, it appears Greece has effectively shut down, after the country's Finance Ministry - the nerve center coordinating not only the country's economy but its continued bailout requests, has announced the start of a 9 day strike beginning October 17. May as well call it indefinite, and may as well put a fork in it. From Bloomberg: Greek finance ministry workers blocked access to the ministry’s main building in central Athens as part of protests against government plans to cut jobs and wages. Members of the Federation of Finance Ministry Unions hung a banner reading ‘Occupation’ from the roof of the eight-story building and hoisted black flags around the roof. The federation plans a nine-day strike beginning Oct. 17, according to an e-mailed statement today
Banks are going to be nationalized across the globe, these will be known as the government bank, that is the gov bank. Bank nationalizations means the Club of Rome’s Call for regional economic government will accelerate, especially as currencies fall lower and the US Dollar, $USD rises. As the US Dollar rises, West Texas Intermediate Crude, $WTIC, traded by USO will fall lower. It may be that alternative forms of payment for oil will be worked out. The hammer seen in the chart of world stocks, ACWI, illustrates the awareness that banks cannot raise money.
3) … The too big to fail banks, RWW, Banks, KBE, and investment banks, KCE, and Blackstone Group, BX, led Financials, XLF, higher, as a carry trade rally took the Emerging Market Financials, EMFN, and European Financials, EUFN, higher.
The carry trade rally took the carry trade banks zooming; these included BSBR, ITUB, BBD, BMA, BBVA, BFR, FBP, IBN, HDB, WF, KB, BNPQY, UBS, NBG,
Junk Bonds, JNK, Emerging market bonds, EMB, and world government bonds, BWX, rose on the rising currencies. The rise in value of sovereign debt is only temporary as Shaun Richard of Mindful Money relates the impact of a country bailing out a relatively large bank. We have seen an example of thsi unfold over the last week or so as Belgium has ended up nationalising its 60% share of Dexia. Before this took place Belgian ten-year government bond yields had dipped to 3.6% and right now they are 4.23% so a rise of 0.6% has taken place. And Shaun Richard writes Belgium and Dexia are now trapped in an unholy embrace where the biggest loser will be taxpayers
Indonesia, IDX, rose strongly on the rising currencies.
Russia small caps, RSXJ, and Poland, EPOL, rose largely on the strong carry trade in the Russian Ruble.
Carry trade lending took National Bank of Greece, NBG, up 11%.
Carry trade lending took Austria, EWO, up strongly.
Argentina, ARGT, rose largely because of the strong carry trade in BMA, BBVA, BFR; Argentina is a carry trade banking country. It is the very definition of carry trade speculation.
Switzerland, EWL, rose largely because of the strong carry trade in UBS.
Brazil small caps, BRF, rose largely because of the strong carry trade in BSBR, ITUB and BBD,
India, INDY, rose largely because of the strong carry trade in IBN and HDB.
The South Korea Small Caps, SKOR, rose largely because of the strong carry trade in KB and WF.
France rose, EWQ, largely because of the strong carry trade in BNPQY.
Germany, EWG, rose largely because of the strong carry trade in DB.
The 0.8% fall of the Yen, FXY, and a strong rise in the world major currencies, DBV, and the emerging market currencies, CEW, led by the Russian Ruble, FXRU, the New Zealand Dollar, BNZ, the Australian Dollar, FXA, made for a risk on carry trade which sent a number of country stock ETFs soaring. The optimized carry ETN, ICI, rose. And the currency demand curve, RZV:RZG, rose. Country ETFs rising included, CHIM, CHIX, CHII, HAO, HKK IDX, RSXJ, HKK, ENY, ARGT, EPOL, CNDA, INDY, SCIN, SKOR, EBB, EWN, EEB, EMT, EEM, BRF, KROO, VGK, EWI,
The risk on carry trade sent natural resource stock and transportation ETFs higher as well. These included COPX, URA, SEA, FAA, WCAT, TAN, GEX, KOL,
Speculative ETFs rose strongly including BJK, ROOF,
Debt ETFs rose strongly ABCS, PSP, KBWY,
Automobile and truck parts, CLC, and SMP, rose strongly. Appliance and Tool, GWW, rose strongly.
Whirlpool, WHR, rose. Automobile parts retailer GPI rose.
Will the natural resource trade in WCAT, COPX, ALUM, KOL, XME, CRBI, continue to fly or fall?
Will the credit trade in KCE, AXP, NNI, COF, SLM, ECPG, continue to fly or fall?
Will the confidence trade banks KBE, STI, continue to fly or fall?
Will the emerging market trade in EWX, EEM, EMT, IDX, THD, continue to fly or fall?
Will the silver mining stocks, SIL, MVG, CDE, PAAS, SLW, HL, continue to fly or fall?
Will the small cap country trade EWI, HAO, HKK, EPOL, RSXJ, BRF, SCIN, SKOR, KROO, GERJ, continue to fly or fall?
Will the growth trade in CHIX, CHII, and CHIM, continue to fly or fall? Of note ZeroHedge reports Credit Suisse Buries China's Banks.
Will the QE trade shares TAN, ENY, ABCS, ROOF, ITB, BJK, PSP, FAA, SEA, continue to fly or fall?
Will retailers ANF, ORLY, AZO, continue to fly or fall? Will International Business Machine, IBM, continue to fly?
Inflation destruction turned Alcoa shares slightly lower. Bloomberg reports Alcoa(NYSE:AA) Profit Misses Estimates as Europe Orders Cut 'Dramatically' and Costs Rise. Alcoa Inc., AA, the largest U.S. aluminum producer, posted third-quarter profit that trailed analysts’ estimates and said its customers in Europe “dramatically” cut orders amid uncertainty about the region’s economy.
Bloomberg reports CFTC Said to Have Enough Votes to Approve Speculation Limits. The US Commodity Futures Trading Commission has the three votes necessary to approve limits on speculation in oil, natural gas and other commodities at an Oct. 18 meeting, said a person briefed on the rule-making process. At the same meeting in Washington, the agency’s five commissioners may vote on rules governing clearinghouses that stand between buyers and sellers in derivatives markets, CFTC Chairman Gary Gensler said in a speech at a Futures Industry Association conference today in Chicago. The agency also may vote to delay until next year regulations originally set to be completed by July 2010. “We are focusing on considering these rules thoughtfully - - not against a clock,” Gensler said in the speech. The person briefed on the process spoke on condition of anonymity because the decision-making isn’t public. The rules will govern trades conducted by Goldman Sachs Group Inc., JPMorgan Chase & Co. and transactions on CME Group Inc., the world’s largest futures exchange, among others.
Bloomberg reports Volcker Rule Gaps May Leave Uncertainty About Trading Bans. More than a year after they began crafting the details of the Dodd-Frank Act’s ban on proprietary trading by U.S. banks, regulators released their first version of the so-called Volcker rule while acknowledging that hundreds of questions remain unanswered. The proposal written by four regulatory agencies and issued for public comment today would ban banks from making trades for their own accounts, allowing them to continue short-term trades for hedging or market-making. Banks also would face limits on investments in hedge funds and private-equity funds. Within the rule’s 298 pages, regulators seek feedback instead of offering precise definitions for many of the banned activities, which may leave financial firms uncertain about how to prepare for the final adoption of the rule next year. “There aren’t bright lines on many questions and that will make it difficult for banks to put in place their compliance regime,” said Kim Olson, a principal at Deloitte & Touche LLP, who formerly worked at the bank supervision department in the Federal Reserve Bank of New York.
Sovereign uncertainty impeded oil from rising strongly higher with stocks; USO rose only 0.9% today. Oil Drops First Day in Six on Concern Economy to Falter as Stockpiles Rise. Oil fell for the first day in six in New York, snapping the longest run of gains this year, on concern that fuel demand will falter after U.S. and European lawmakers rejected plans to bolster their economies
Between The Hedges relates Handelsblatt reports Billionaire investor George Soros and 100 supporters, including politicians, managers and economists, called for immediate measures to solve the European debt crisis, citing a letter to the heads of the 17-nation currency bloc. The signatorie, wrote that national solutions for the debt crisis would inevitably lead to an European collapse. Current measures are coming too late, are not sufficient and may trigger global tensions on financial markets.
4) … Unless restrained, all governments devolve to tyranny. Now, the Federal Reserve is effecting a coup d etat through the Dodd Frank legislation, similar to the Jekyll Island coup that established the Federal Reserve Bank.
A Federal Reserve financial services regulatory reform coup is underway. Edward Wyatt writes in the NYT Fed Oversight of Nonbank Financial Companies Is Weighed. Proposed rules would let Fed regulate non banks. Financial companies that are not banks but have more than $50 billion in assets and $20 billion in debt could be regulated by the Federal Reserve and required to meet tougher standards, according to a proposed rule issued Tuesday by the nation’s top financial regulatory board. The Financial Stability Oversight Council voted unanimously to seek public comment on a proposed rule that laid out the standards by which insurance companies, hedge funds, asset managers and the like could fall under stricter regulation.
Many companies and trade groups lobbied hard for months in hopes that their companies would not fall under the purview of the law, fearing increased regulation. Treasury Department officials declined to estimate how many nonbank financial companies might meet the proposed standards. There are approximately 30 banks in the United States with more than $50 billion in assets.
Several companies are obvious candidates, and a number of them have already submitted comments to the council or had meetings with Treasury Department officials on earlier drafts of the proposed rule. Among those companies are big insurers like the Mass Mutual Financial Group and Zurich Financial Services; hedge funds like Citadel and Paulson & Company; and asset management and mutual fund companies like BlackRock, Fidelity Investments and the Pacific Investment Management Company.
The new standards and the creation of the oversight council stem from the Dodd-Frank regulatory act, which, in response to the financial crisis, expanded the ability of financial regulators to oversee big companies that could prove to be a threat to the financial system. The council comprises the heads of the major regulatory agencies and other financial industry representatives.
Timothy F. Geithner, the Treasury secretary and chairman of the council, said the ability to designate so-called nonbank financial companies for heightened supervision was “one of the most important things that the Dodd-Frank Act did.” … “The United States in the decades before the crisis allowed a large amount of risk to build up in a wide variety of institutions outside the formal banking system,” Mr. Geithner said. “When the storm hit,” he said, “that put enormous pressure on that parallel financial system, causing a lot of tension and trauma across financial markets, amplifying the pressure on the formal banking system and adding to the broader damage to the economy as a whole.”
Some insurance trade groups, which have lobbied aggressively against having their members subject to more stringent federal oversight, made the case again on Tuesday that they did not threaten the financial system. Property casualty insurers are not highly leveraged or interconnected and have a fundamentally different business model than banks, a fact that warrants different regulatory treatment,” said Ben McKay, a lobbyist for the Property Casualty Insurers Association, a group that counts giants like Ameriprise, Liberty Mutual and Geico as members. BlackRock, for example, manages roughly $3.5 trillion for institutional and individual clients. But in a letter filed in February with regulators, it argued that, as an asset manager, it did not own those assets. They are not on its balance sheet, and the company does not employ significant leverage that magnifies the risk of its investments.
The Treasury Department officials said a decision about whether or not companies fell under its proposed rules would be made on a case-by-case basis. The Dodd-Frank Act requires the council to assess 10 considerations when evaluating a nonbank financial company, and the proposed rule anticipates grouping those into six categories. Three of those are meant to assess the potential impact of a company’s financial trouble on the broad economy. They are size; substitutability, or the degree to which other companies could provide the same service if a firm left the market; and interconnectedness, or linkages that might magnify a company’s financial distress and cause that distress to spread through the financial system. The other three categories seek to measure the vulnerability of a company to financial distress: leverage, or level of borrowing; liquidity risk and maturity mismatch, or its ability to meet short-term cash needs; and existing regulatory scrutiny.
Governments have been the largest borrowers. And under Neoliberalism they have been the safest originators of debt. The US Federal Reserve, the Central Bank of the United Kingdom, and other central banks, with the exception of the ECB, create money by issuing Government Treasury Notes and Bonds. The creation of government debt is one of the three attributes of sovereign authority, it being able to create money, levy taxes, and declare war. Hence the term sovereign debt. Sovereign authority, has traditionally come from constitutional authority, yet sovereign authority to create money came to the US Federal Reserve through a 1913 coup d etat.
Now, the Federal Reserve is effecting a coup d etat through the Dodd Frank legislation, similar to the Jekyll Island coup that established Jekyll Island coup that established the Federal Reserve Bank. The purpose of the current coup d etat, the Federal Reserve financial services regulatory reform coup, is to establish sovereign authority over credit, lending, money and investment, as well as administration of commerce, trade and industry, to promote the security and prosperity of a soon coming regional economic government, as called for by the Club of Rome in 1974. Eventually, a group of stakeholders from government, finance, and industry will provide a new seigniorage, that is a new moneyness, based upon diktat, not debt. The word, will, and way of these sovereigns, having sovereign authority, will create a new money and credit, and the people will be amazed and follow after it, giving it their full allegiance. Despite the William Lyon Mackenzie King warning, published in BATR, totalitarian collectivism is the way of the future, “ Once a nation parts with control of its credit, it matters not who makes the nation’s laws."
The Federal Reserve’s regulatory mission creep through the Dodd Frank legislation is an example of tyranny creep, whose genesis came through the New Democrat Coalition's Financial Services Task Force which announced the Working Group on Regulatory Modernization.
On 9-18-2009, with the unprecedented federal takeover of insurance giant AIG, and continuing instability on Wall Street rattling investors worldwide, the New Democrat Coalition's Financial Services Task Force, chaired by Reps. Melissa Bean (IL-08) and Tim Mahoney (FL-16), announced a working group that will focus on the need for regulatory modernization of the financial services industry.
"I am pleased that two of the most constructive and thoughtful members of the Financial Services Committee, Reps. Bean and Mahoney, will be heading up this New Democrat Working Group. The existence of the Working Group will be very helpful in our efforts to adopt sensible, appropriate regulatory reform," said Rep. Barney Frank, the Chairman of the House Financial Services Committee.
"This unprecedented move by the Fed highlights the dangers of letting an antiquated system govern a 21st-century marketplace," said Bean. "These upheavals are a startling indication of the need to update our oversight of capital markets and the financial services industry." … "In my almost 30 years of business experience, first in technology and more recently on Wall Street, I can tell you that when Wall Street innovates the American economy needs to duck," said Congressman Mahoney. "This current crisis again shows the need for Congress to take measured action to identify these risks before they destroy jobs and the financial security of Americans."
Earlier this year, the Treasury Department released its Blueprint for a Modernized Financial Regulatory Structure, which calls for comprehensive regulatory reform to reflect the complexity and overlap of today's financial markets.
While emergency backstop measures, such as the AIG intervention, are meant to help stem the tide sweeping the global financial markets, the current crisis has proven to be beyond the market's ability to correct itself since the subprime mortgage fallout in 2007. With various measures directed towards Bear Stearns, Fannie Mae and Freddie Mac, and now AIG, the Bush Administration has been using taxpayer dollars to treat the effects without dealing with the root cause.
"If we're going to put federal taxpayer dollars at risk, then the federal government needs effective, dynamic oversight of these markets," Bean said.
"As someone who has worked both on Wall Street and now in Congress, I know how important it is to have referees on the field to call the game," said Rep. Ellen Tauscher (CA-10), the only current Member of Congress who once held a seat on the New York Stock Exchange and chair of the NewDems. "A fair regulatory system is critical to the function of our financial markets, and to protecting consumers from this kind of financial security roller-coaster. For eight years, the Bush Administration has been asleep at the switch. It is long past time we update our regulations to reflect the 21st century economy."
Congressman Bill Foster (IL-14), a member of the new working group who sits on the Financial Services Committee, said "Given the unprecedented challenges gripping our financial markets, it is vital that we modernize our financial regulatory system and ensure that something like this is never allowed to happen again. I am anxious to get to work on solving these problems, restoring investor confidence, and bringing some stability to our economy."
The New Democrat Coalition, always leaders on the economy and innovation, is committed to enacting policies that maintain U.S. competitiveness, meet the challenges posed by globalization in the 21st Century and strengthen our national security. The NewDem Coalition is dedicated to providing the leadership necessary to implement policies that will ensure that America maintains its prosperity and global leadership
Doug Wilson writes The Tyranny Movement began in earnest at the turn of the last century in 1913. The "Money Trust" as found to exist in a report by the United States House of Representatives Subcommittee on Banking and Currency, entitled: Investigation of Financial and Monetary Conditions in the United States managed to drive the final nails into the coffin of the American Constitutional Republic. The victory was secured with the passage of the Federal Reserve Act in December of 1913, which created the 3rd Central Bank of the United States.
The primary motivator was a desire by the "Money Trust" to regain its lost monopoly over the nation's monetary policy and larger influence over the government as a whole while fostering an endless cycle of credit, ergo debt.
In summary, the Federal Reserve financial services regulatory reform coup, similar to the Jekyll Island coup that established the US Federal Reserve Bank is now underway. The end result will be totalitarian rule manifesting as state corporatism, austerity measures, and debt servitude. Totalitarian Collectivism is America’s, Canada’s and Mexico’s future, as all countries will be merged in a continental economic government. Albert Nerenberg writes in the Montreal Gazette that Our World Is Now Ruled By Finance. Its presence has displace real value in the economy. The world tomorrow will be ruled by diktat of the sovereigns as national sovereignty is waived and regional economic government is established.
5) … News of the day
Robert Fico will likely to rise to power in Slovakia. Rob Cameron at BBC News relates Slovakia votes down eurozone bailout expansion plans. As one by one the rest of the eurozone ratified the proposals and the debt crisis deepened, most of the coalition came around. Except Richard Sulik, leader of the neo-liberal Freedom and Solidarity party, and his 21 MPs. Some placed their hopes in Robert Fico, former prime minister and leader of the leftist opposition. But Mr Fico sensed an opportunity to wound and perhaps bring down the government, hastening early elections he is likely to win. What will happen next? A second vote will probably be held within days. With Mr Ficos's support that vote is likely to succeed.
Bloomberg reports Slovak Parties Seek Talks on EFSF Vote Repeat. Slovakia’s opposition leader said lawmakers must find a way to approve Europe’s enhanced bailout fund, which was rejected yesterday amid a dispute over the future of Prime Minister Iveta Radicova. Slovakia “must sign up to the rescue fund,” Robert Fico said late yesterday, adding that his party, which didn’t back the measure yesterday, is awaiting a proposal from the ruling coalition. Radicova said the only country in the 17 nations that use the euro that has yet to approve European Financial Stability Facility, must find a solution to approve the EFSF “as soon as possible.” No time for a new vote has been set. “Eventually a yes vote will be secured,” Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, said by phone yesterday. “Does Slovakia really want to be alone among 17 euro-zone members states on this one, and when the future of Europe is at stake?” The political turmoil in the country of 5.4 million people reverberated on global stock and currency markets. Slovak approval of enhanced powers of the EFSF, the temporary bailout fund, is crucial for adopting the key element in the strategy to prevent contagion from the debt crisis that has spread from Greece to other countries in the region.
Robert Fico in saying that Slovakia “must sign up to the rescue fund” is speaking with the authoritarian imperative of the Club of Rome Clarion Call, which came in 1974, when 300 elite world leaders met in summit and presented regional economic governance as the solution to the chaos stemming from the failure of Neoliberalism, specifically the Milton Friedman Free To Choose Floating Currency Regime. Fate is operating to replace Neoliberalism with Neoauthoritarianism; the former was characterized by wildcat finance, a Doug Noland term, and the latter is characterized by wildcat governance where leaders bite tear and rip one another.
Bloomberg reports Hong Kong Inflation Better Than Change to Peg, Greenwood Says. Hong Kong must bear the pain of inflation to maintain the dollar peg because the Chinese city may be worse off with the alternatives, according to John Greenwood, architect of the city’s fixed-exchange-rate system. Hong Kong’s consumer prices excluding distortions from government subsidies rose 6.3 percent in August from a year earlier, the highest rate since the global financial crisis in 2008. Accelerating inflation has highlighted limits on monetary policy in the city, where official interest rates move in sync with those of the U.S. Federal Reserve. “Although inflation is unpleasant, undesirable, it is a lesser cost than having a fluctuating currency such as we had in 1983,” Greenwood, chief economist at Invesco Asset Management, said in an interview in Hong Kong yesterday. “We would be jeopardizing, potentially, a lot of the capital market activities if we have to move to a more volatile currency system.”
The WSJ reports Congress Approves Trade Pacts. Congress passed free-trade agreements Wednesday with South Korea, Colombia and Panama, ending negotiations so nettlesome they likely spell the end of progress on such pacts until after the 2012 election. The House passed all three deals Wednesday evening, and the Senate followed suit. The deals are expected to generate $13 billion in new exports—$11 billion to South Korea—chiefly farm products. As well, they lift a host of non-tariff barriers, including over U.S. professional services.
MarketWatch reports MarketWatch China Sees Wenzhou Lending Crisis Snowball. Chinese city plays risky game of high-interest private lending. Dubbed the nation’s capital of private financing, the city of Wenzhou offers a textbook example of how non-bank lending has fueled private-sector prosperity — and risk-taking — in China. A recent central bank survey said about 60% of all local businesses and the vast majority of households are interconnected through the city’s private-lending system. It’s a tight financial network that interweaves lenders and borrowers collectively, often to their mutual benefit and sometimes to their terrible loss. If only a few debt-ridden companies collapse because they can’t afford to repay the high-rate, short-term loans they’ve gotten from private lenders in the network, the ensuing financial trouble can ripple through the entire credit-connected community, exempting few from turmoil. Since early this year, according to the Wenzhou Public Security Bureau, some major Wenzhou-area private-company owners have fled creditors to avoid repaying loans. In each of these cases, though, the system survived relatively unscathed, and community deal-making continued. Yet a serious domino effect of financial trouble started to endanger the entire system in July, after a well-known entrepreneur named Wang Xiaodong disappeared.
Bloomberg reports Default Swaps on Greece's Debt May Pay Out If Losses Exceed 21% Threshold. Credit-default swaps insuring Greek government debt may pay out should proposals to increase losses on the bonds exceed the 21 percent already agreed, according to analysts. Deeper cuts would likely have to be imposed on bondholders, triggering a credit event on the swaps contracts, analysts at Barclays Capital, Evolution Securities Ltd. and Credit Agricole SA said.
Ambrose Evans Pritchard writes Even a Slovak 'Yes' Will Make No Difference. Richard Sulik, the speaker of parliament, has caught a mood of popular disgust that goes far beyond his own country. He also touched on the most neuralgic issue, reminding everybody that the EFSF is "mainly for saving foreign banks". These are French, German, British, Dutch, and Belgian banks, of course. Mr Sulik is right. The EU-IMF rescue loans have not helped Greece pull out of its downward spiral. They have pushed the country further into bankruptcy. Greek public debt will rise from around 120pc of GDP to 160pc under the rescue programme, and the IMF is pencilling in figures above 180pc. The rescue loans have rotated into the hands of creditor banks, life insurers, pension funds, and even a few hedge funds. ECB bond purchases have allowed to investors to dump their holdings at reduced loss, shifting the risk to EMU taxpayers. It is a racket for financial elites. A pickpocketing of taxpayers, including poor Slovak taxpayers. "I’d rather be a pariah in Brussels than have to feel ashamed before my children," he said. Bravo.
Shaun Richard writes Covered Bond Purchases A Problem For The ECB’s Balance Sheetet. Covered bonds are instruments that banks use to gain funding and they are similar to the asset backed securities of the United States that contributed to the credit crunch. The assets that back these are usually collaterised mortgages and public sector loans. Back in 2009 when euro zone politicians were blaming Anglo-Saxon banks for the credit crunch the ECB bought 60 billion Euros of these in rather a contradiction of the bombast. In an echo of the problems of 2009 it is going to start buying another 40 billion Euros worth next month although it might be wise to use the word worth in a loose context!
Shaun Richard writes on Central Bank foreign exchange liquidity swaps. A major theme of this week, and something rarely discussed in the main stream media over the weekend is that the first tender for the US dollar swaps is only on Wednesday. I expect for some banks at this time these will be the equivalent of finding an oasis in a desert! Such are the stresses at this time that one of those most in need Dexia has collapsed before it even got there.
If you were a much more cynical man than me you might also conclude that all the Euro waffle from the meeting between President Sarkozy and Chancellor Merkel was merely to get us to Wednesday. How many times have we been told that they have a plan but cannot tell us? Quite a few and so far the plan that eventually turns up has invariably been like the Emperor with no clothes. Otherwise we would simply not be in a deepening crisis would we? I did point out the likelihood of this last Tuesday. So it is not impossible that Euro zone leaders will come up with plans and fantasies to cover this period knowing that on this date they will have the equivalent of a Monopoly get out of jail free card.
For those interested in how US dollar fx liquidity swaps may help Europe’s banks I discussed this on the 16th of September. I have also written a guide on them which can be found here.
Shaun Richard writes on Austria’s Erste Bank and losses on Swiss Franc carry trade lending In essence this said that so far in 2011 it had lost 950 million Euros. As interesting as the writedowns on Swiss Franc lending were the losses that were announced on the sale of credit default swaps which up until now it had decided not to declare! Sometimes you really could not make this up! If we step back from Erste Bank we see the following. Losses on Swiss Franc lending which will be evident elsewhere and banks with already risky portfolios (foreign currency lending) hedging it by the sale of risky assets. This is a clear theme of the credit crunch where banks which make one mistake add to it by making a variety of them. In some ways you could call them accident-prone except of course when they made profits from it they told us it was due to their skill and draw large wages and bonuses. Put another way why are there no rogue trader profits? I discussed these issue in relation to the UBS rogue trader issue back on the 15th of September. In another regular theme the Austrian taxpayer will be mulling several matters this morning. Firstly that it will be quite some time before they get back the 1.2 billion Euros they bailed the bank out with in 2009 and that any corporate tax revenue is looking unlikely for quite a while too. Yet again bank management is winning and the taxpayer losing. I would say that shareholders are winning too but they are not as the price has halved since the beginning of July.
Hasn’t the Swiss franc weakened recently? Yes it has but at 1.23 to the Euro it is back to where we were when I wrote my article of the 24th of May. By then it had established a surge which caused all sorts of problems for Switzerland itself and also for those who had borrowed in Swiss Francs. So an extraordinary effort by the Swiss National Bank with all sorts of attendant risks (it abandoned a similar policy some years ago when inflation hit 8%) has only got us back to late May so far!
John Redwood a Member of parliament writes The UK establishment thinks we need to help save the Euro and thinks the Euro can be saved
And WSWS relates There is overwhelming popular opposition to supporting the banks by using public funds. The Occupy Wall Street movement, which is rapidly spreading in the US, finds an echo in Europe. However, not one of the establishment parties or trade unions supports this opposition to finance capital. The official political debate revolves solely around the question of how the attacks against the working class can best be implemented and how resistance to such attacks can be most effectively suppressed.
6) … Fate is destroying nations and national sovereignty, and all current forms of economic life, such as Capitalism, and Greek Socialism, by providing a European superstate, as part of a ten toed kingdom of regional economic government, as called for by the Club of Rome in 1974 where eventually ten kings will rule in each of the ten toes, that is the world’s ten regions.
Sovereign Armageddon, a credit bust and global financial breakdown, is imminent. It will come out of Gotterdammerung, the clash of the gods, that is the conflict between world leaders and investors,, One Leader, the Sovereign, and his banker, the Seignior, will arise to speak for and to the Eurozone, which will be transformed into a Federal Europe as leaders meet in summits and wiave national sovereignty, and implement a Fiscal Union, empower the ECB as a bank, and develop a common European Treasury.
Structural reforms will be made to national labour law. The Constitutional right to not be terminated from a state job in Greece will be abrogated. Renee Maltezou of Reuters write Constitutional Crisis Looms: Greece to tackle difficult task of firing state workers.
Bank reorganization will be the order of the day: banks will be nationalized, that is integrated with the government and be known as the government bank or gov bank for short.
Sovereign Armageddon will lead to new leadership in the EU. The Eurozone’s leader will most likely be Herman Van Rompuy. Sovereign authority will exist in him and his banker; they will be the Eurozone’s government. Seigniorage, that is moneyness, will no longer be based upon debt, but rather will be based upon the diktat of austerity measures and debt servitude; people will be amazed by this, and place their faith in it, and give their full allegiance to it.
Under Neoliberalism, fiscal sovereignty came from sovereign nations issuing sovereign debt. But under Neoauthoritarianism, where nations have lost their sovereign debt authority, the Sovereign and the Seignior will have fiscal sovereignty. Credit will not come from the securitization of debt; but rather from the word, will and way of sovereigns and stakeholders appointed from industry and government. Lending will only go firms that are key to the region’s security and prosperity.
Some make the case for breakup of the Eurozone. Edward Harrison wrote in early September in Credit Writedowns stating breakup of the euro zone is likely. Mike Mish Shedlock in June, wrote “the policy decisions that governments and the EU are making cannot be maintained politically in the periphery or in the core”. Nouriel Roubini wrote the Eurozone could break up over a five-year horizon. And Mr. Shedlock writes: “We both stated that the key to maintaining the euro zone at all was the potential for closer integration of the member states. But the German Constitutional Court decision makes this nearly impossible.” Ambrose Evans Pritchard relates German court curbs future bail-outs, bans EU fiscal union.
Austrian Economists have a hero in Ron Paul, whose philosophy is fathered by Murray Rothbard, Ludwig von Mises, and Friedrich Hayek, and continued today by Lew Rockwell of the Mises Institute. As a group, those of the Austrian School of Economics envision a world with sovereign individuals and sovereign nations each with its own currency.
Libertarians desire freedom but fate is operating so that all will be one living in debt servitude. Despite William Lyon Mackenzie King’s warning, presented in BATR, Totalitarian Collectivism is the way of the future. Mr King writes, “ Once a nation parts with control of its credit, it matters not who makes the nation’s laws”.
Fate is taking the whole world toward state corporatism, that is statism, where the Beast Regime of Neoauthoritarianism, with its seven heads, symbolic of mankind’s institutions, and ten horns, symbolic of the world’s ten regions, which will come to rule all, replacing the Milton Friedman Regime of Neoliberalism, which ruled from 1971 to July 2011.
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