Financial Market Report for October 21, 2011
1) … World Stocks and World Small Cap Stock, rallied, early in the day, manifesting a short selling opportunities in a nascent basic materials, BRIC, and emerging markets, bear market.
World stocks, ACWI, and World Small Cap Stocks, VSS, rose early in the day as the Basic Materials, CHIM, TSXV, URA, EMMT, XLB, IYM, and MXI, led by Copper Miners, COPX, and Aluminum, ALUM, rallied from their sharp downturn, which rallied commodity currencies, CCX, and Base Metal Commodities, DBA, Copper, JJC, Commodities, DBC, Timber, CUT, Unleaded Gasoline, UGA, and Oil, USO, which in turn rallied Brazil, Russia, India and China. Silver, SLV, rose in a bear flag pattern, suggesting its fall lower again soon. This Finviz Screener of the Basic Material ETFs, shows gain of 3%.
Rallying emerging market currencies, CEW. took the emerging markets, EEM, and their leaders Thailand, THD, and Turkey, TUR, higher. The higher commodity prices rallied the South African Rand, SZR, and South Africa, EZA. A higher Euro, FXE, rallied the European Financials, EUFN, Austria, EWO, Switzerland, EWL, Norway, NORW, Sweden, EWD, and Germany, EWG. A stronger Ruble, FXRU, rallied Russia, RSX, and the Russia Small Caps, RSXJ.
The WSJ reports credit evaporation in the Emerging Market Financials, EMFN. which traded unchanged today. Crisis in Euro Zone Weighs on Emerging-Market Banks. The euro-zone debt crisis is spilling over to emerging-market banks, signaling new risks for economies that had largely brushed off European troubles for the past two years, an industry survey found. Across Asia, Eastern Europe, Latin America and elsewhere around the world, banks are tightening credit standards and facing an increase in bad loans, according to the survey to be released Friday by the Institute of International Finance, a global association of big banks. The report found that funding conditions in international markets have "deteriorated significantly" even as local funding conditions remained stable
Growth driven South Korea, EWY, and South Korea Small Caps, SKOR, rose strongly. Regional Banks, KRE, continued to rally and the European Financials, EUFN, rose strongly, but the chart of the European Banks shows a dark cloud covering candlestick eight days ago, evidencing an end to their recent rally, in spite of today’s gains..
Investment Bankers, KCE, Metal Manufacturing, XME, rose. Brazil, EWZ, Brazil Small Caps, BZF, Russia, RSX, Russia Small Caps, RSXJ, India, INDY, India Small Caps, SCIN, India Earnings, EPI, China, YAO, Chin Materials, CHIM, and China Small Caps, HAO. rose.
China Stocks Drop for Biggest Weekly Loss in Five Months; PetroChina Falls. China’s stocks fell, capping the benchmark index’s steepest weekly drop in five months, on speculation slowing economic growth and the nation’s tighter monetary policies are hurting earnings. Petro China, PTR, slid to a one month low as the nation’s largest oil producer said it may have a 2011 refining loss of over 50 billion yuan. Yanzhou Coal Mining, YZC, led declines for coal producers. “China’s economic slowdown will hurt companies’ earnings in the fourth quarter and next year,” said Mei Luwu, a fund manager at Lion Fund Management Co. in Shenzhen. The Shanghai Composite Index, CAF, slumped, to 2,317.28 at the close, extending this week’s slump to 4.7 percent, the most since the week ended May 27.
In addition to being a basic materials and currency carry trade rally day, it was a credit rally day as well as the credit carry trade country Argentina, ARGT, rose the most of almost any country stock. Lender Capitol One Finance, COF, American Express, AXP, Nicholas Financial, NICK, Nelnet, NNI, Encore Capitol Group, ECPG, SLM Corp, SLM, PHH Corp, PHH, seen in this Finviz Screener all rose.
The rise in credit caused a rise in Eduction stocks such as APOL, DV, EDMC, ESI, CECO, LRN, BPI, STRA, EDU, XRS, CAST, seen in this Finviz Screener.
The Morgan Stanley Cyclicals Index, $CYC, rose 3% largely on a ratings upgrade on Ford, F.
The October rally continued today in the Transports, IYT, which rose more strongly than the the Industrials, IYJ. The Dow, DIA, jumped to just under 200 day moving average. And the S&P, SPY, and Banks, KRE, Energy, XLE, led by Chevron, CVX, and Conoco Phillips, COP, continued their rally in a breakout. But the Russell 2000, IWM, simply rose to 200 day moving average. The chart of the S&P, SPY, versus, the poor performing country ETFs, shows it to be in a safe haven rally SPY, ARGT, RSX, EWG, EWI ,INDY EWZ ,YAO
Tyler Durden relates Rodrigo Serrano of Rational Capitalist Speculator Weekly Bull/Bear Recap for October 17-21, 2011. So far for the reporting season, 63.7% of S&P 500 companies have beaten consensus earnings per share estimates, which is stronger than the past 2 quarters. Meanwhile, revenue per share has come in line with average beat rates. This earnings season has been been positive for equity markets. They have just broken through the top end of the roughly 3 month range.
Mr. Serrano adds PPI runs hotter than expected, coming in with a headline reading of 6.9% YoY in September. When paired with an increase in import prices of +13.4%, inflation at the the producer and importer level will buoy the CPI, or decimate company margins if consumer’s wages can’t keep up. Many bulls viewed the tamer CPI readings as a signal for more wiggle room for QE3. Sure, go ahead bulls, let’s break that 23-yr high in the Misery Index. We are one QE away from stagflation.
And Mr. Serrano concludes: 11 consecutive declines in the ECRI, ’nough said.
The defensive sector, Utilities, XLU, blasted higher on the higher currencies. Chart action suggests that DTE Energy, DTE, is the king of utilities. It pays a much coveted 4.6% interest.
Industrial And Office REITS, FNIO, Premium Equity REITS, KBWY, the High Dividend ETF, ABCS, and Small Cap Real Estate, ROOF, which had been acting bearishly rose strongly. Home builders, XHB, Junk Bonds, JNK, and Leveraged Buyouts, PSP, rose strongly.
Today’s volcanic rise in the Yen, FXY, upstaged the rally in emerging market currencies, CEW, and world major currencies, DBV, such as FXA, FXM, FXC, FXB, FXS, BZF, and BNZ. The explosive trade up in the Yen, FXY, puts the nail in the coffin to both carry trade investing and the Milton Friedman Free To Choose, floating currency regime. And gives the go signal for going short the Basic Materials, and the Emerging Markets as well as China. The chart of the Australian Dollar, FXA, the Canadian Dollar, FXC, shows what may be an evening star, and the chart of the Brazilian Real, BZF, and the chart of the emerging market currencies, CEW, shows weak. India’s rupee ICN, dropped solidly yesterday on speculation slowing economic growth and faster inflation will deter foreign investment. Jeanette Rodrigues of Bloomberg reports Food inflation in India accelerated to 10.6 percent in the week ended Oct. 8 from a year earlier, the fastest pace since April. The currency demand curve, RZV:RZG, and the Optimized Carry ETN, ICI, suggests the October rally in currencies is over. The chart of the Japan shares, relative to the Japan Small Caps, EWJ:JSC, suggests that the October global risk rally is over.
Catarina Saraiva of Bloomberg reports Drops to Post WWII Low Against Yen. The US Dollar, $USD, closed at 76.39. I do not see it going much lower, as I see world major currencies, DBV, the emerging market currencies, CEW, and commodity currencies, CEW, going lower as the seigniorage of Neoliberalism, is failing. Jamie Saettele in Daily FX presents of a chart of the USDJPY falling from current 76.6 to a possible objective of 74.
Bloomberg reports Japan May Add Extra $52B Aid on Strong Yen. Japan is preparing to unveil plans to spend an extra 4 trillion yen ($52 billion) to help its exporters cope with a surging yen and spur job creation. And Bloomberg reports Japan Shipyards Demand Lower Steel Prices. Japanese ship builders will ask local steel mills to cut prices for plate used to construct vessels or be replaced by rivals from South Korea or China as the yen strengthens, three people familiar with the matter said. Financial Times reports Japan’s cabinet announced Y2,000bn ($26bn) of subsidies to encourage companies to keep factories and jobs in the country. “We want to help companies overcome the surging yen,” Jun Azumi, finance minister, told reporters. And MarketWatch reports The head of Japan’s auto industry asked trade and industry minister Yukio Edano called for a drastic response to the persistently strong yen, warning that Japan’s economy is already “hollowing out” due to the strong currency. In a meeting between Edano and executives of the Japan Automobile Manufacturers Association, JAMA president Toshiyuki Shiga said “fundamental counter measures are needed against the strong yen.”
It’s a well known fact that European Banks, such as Banco Santender, STD, have been a major source of carry trade lending in Brazil and Argentina. Today, Sara Schaefer Munoz and David Enrich of the WSJ relate that Spanish banking giant Banco Santander SA frequently says that it doesn’t shuttle money among its far-flung units, a declaration meant to assure investors that its parent won’t raid those units for cash in a pinch. The bank has “a model of subsidiaries which are autonomous in funding and capital,” Chairman Emilio Botín said in a speech here last month. The same day, Santander’s chief executive delivered a slide presentation that said “Each subsidiary is responsible for its own capitalization and funding needs … no cross border funding”
The 200% and 300% ETFs, URTY, EET, UYM, XPP, TNA, MATL, EDC, YINN, seen in this Finviz Screener, which had been selling off, rose strongly, making for an excellent entry point to begin short selling for those so inclined. Personally, I recommend that buy and take possession of gold bullion.
Gold, $GOLD, rose today to 1643, but may fall lower, to somewhere between $1,500 and $1,600 as currencies continue their downturn.
2) … News reports show a the European Sovereign Debt Crisis intensifying.
Italian bond interest rates have reached the point of no return. Jeremy Warner of The Telegraph writes Italian bond yields back at 6pc are a deeply ominous sign that the eurozone's third largest economy is reaching the point of no return, where markets essentially become too expensive for funding.
The now almost certain prospect of a double-dip in Europe has made the debt dynamics of these bigger economies look much more challenging. There is now virtually no prospect of Italy and France meeting their deficit reduction targets. Further austerity would only make the economic squeeze worse still. Even for the larger countries, a crisis which has hitherto been seen as largely one of absent market liquidity is fast turning into one of solvency.
Ambrose Evans Pritchard reports Standard & Poor's is to warn that a double-dip recession in Europe would imperil France's AAA rating and set off a string of downgrades across Southern Europe, undermining the EU's debt crisis strategy. It is unclear whether the EFSF can function without France's top rating to help anchor the system. The fund's finance officer, Cristophe Frankel, said the EFSF would do "whatever is needed to keep the AAA rating" for its operation.
Steven L. Bernard of the WSJ Blogs writes EFSF Scheme Means France Absolutely Must Keep AAA Rating
Bloomberg reports France Likely to Lose Top Rating: S&P. France is among euro-region sovereigns likely to be downgraded in a stressed economic scenario, according to Standard & Poor’s. The sovereign ratings of Spain, Italy, Ireland and Portugal would also be reduced by another one or two levels in either of New York-based S&P’s two stress scenarios, the ratings firm said in a report dated today. These assume low economic growth and a double-dip recession in the first set of circumstances, and add an interest-rate shock to the recession in the second. “Ballooning budget deficits and bank recapitalization costs would likely send government borrowings significantly higher under both scenarios,” S&P analysts led by Chief Credit Officer Blaise Ganguin in Paris wrote in the report. “Credit metrics would deteriorate sharply as a result.” The analysts assume that the European Central Bank and governments would support the banks because failure to do so “could yield even more dire consequences,” according to the report. Speculative-grade corporate defaults would probably rise to 9 percent to 13 percent under the scenarios, S&P said.
Gabriele Steinhauser and Sarah Dilorenzo, of the Associated Press write that Greek Finance Minister Evangelos Venizelos welcomed the news that Athens would get the next euro8 billion ($11 billion) installment, calling it a "positive step." A day earlier, Greek lawmakers had approved new, deeply contentious austerity measures to get the money.
The loans, which still need the approval of the International Monetary Fund, should be delivered during the first half of November. The money will keep Greece afloat for a little longer, but most economists agree that the country also needs a substantial cut to its debt load.
The findings of a report from Greece's international debt inspectors piled more pressure on European finance chiefs to find a solution for the country, whose troubles kicked off the crisis almost two years ago.
According to the report, Athens won't be able to raise money on financial markets until 2021 unless it is allowed to write off more of its debt load. If that doesn't happen, the country would need hundreds of billions of euros in new bailout loans.
A person familiar with the report said a tentative deal reached with banks in July to give Greece easier terms on its bonds would still leave it with a huge debt load of 152 percent of economic output in 2020. The person spoke on condition of anonymity because the report is confidential. Germany is pushing for a revision of the July deal to have Greece's private creditors take bigger losses of 50 percent to 60 percent and reduce its debt to some 120 percent of GDP by 2020.
The EU official said ministers had moved closer to Germany's position on steeper cuts to Greece's debt, but some financially weaker countries were still worried that could destabilize their markets and push their borrowing rates higher. "I wouldn't say there's a consensus but something close to that," he said.
The eurozone needs to find a way to ensure that larger countries like Spain and Italy don't get engulfed in the debt crisis, as they would be too expensive to bail out. Increasing the firepower of the bailout fund, the European Financial Stability Facility, is meant to offer that protection, but Germany and France still disagree over how to do that.
And Ben Rooney in CNNMoney article EU officials scramble to solve the crisis reports Eurogroup president Jean-Claude Junker and Herman Van Rompuy, head of the European Council, are among officials taking part in a flurry of meetings this weekend to finalize a broad plan to stabilize the euro.
Tyler Durden reports German, and US taxpayers, are merely giving Greece money so it can increase it debtor status with French and a few other European banks. To say that this is a viable solution is something that only those who bow at the altar of Alan Greenspan can do." And so once again, in the endless battle between common sense and Keynesianism, it is former 1 - latter 0, after the Troika yesterday released its revised projections for total Greek debt/GDP, which has just been hiked from 149% to 186% by 2013.
John Redwood has been the Member of Parliament for Wokingham relates The government at this summit needs to grasp how big the EU ambition is Mr Barroso made clear in his recent speech in Brussels to the European Parliament that the EU needs more integration. To him the answer to every tension and problem is more EU central power.
The Commission plans a “single coherent framework for the better economic governance based on the community method. …The proposal will ensure the compatibility between the euro area and the Union as a whole.. It will be done in a way that aims to integrate the Euro Plus Pact because coordination and integration must be carried out on a single Community level. ….It is essential that we do not create a division between the 17 members of the Euro area and the 27 members of the EU – most of whom wish to join the euro….”
This is a bureacratic way of saying the EU wishes to control the UK economy as well as Euroland ones.
His detailed measures include rapid implementation of the 6 pack (economic surveillance and budgetary control) and incorporating them into the “Community” method, as opposed to just confining them to the 17 euro members.
Despite UK government messages to the contrary, much of this work programme applies to the UK. The banking system measures apply to the UK, even though the UK authorities say they have done the job and all is fine. Mr Barroso wants more EU financial regulation which will affect us, and still of course presses the Financial Transactions tax which the Uk government says in certain circumstances it will oppose.
Mr Barroso says “We have to complement the monetary union with a real economic union”. “We will further reinforce the role of the Commissioner for economic and monetary affairs in full respect of the Treaty” … “we urge for more discipline, more integration. It means more Europe…”
This is all clearly on the public record. The UK government has to wake up to this reality. It has to say we cannot possibly go along with this. This huge push for more control and more power is why the UK needs now to negotiate a different relationship. Mr Hague’s burning building is well on fire. We need to be well outside the burning Euro building, and keep it well hosed down to stop catching light to the UK. We need to control the hose ourselves.
3) … Will the EU find a lender of last resort in the EFSF monetary authority? If not, will leaders be forced to announce a fiscal union and a European economic government?
European state insolvency has arrived for two reasons. First, the Troika has stated that Greece won't be able to raise money on financial markets until 2021 unless it is allowed to write off more of its debt load.
Writing off more of its debt load is a proposal that goes beyond what the rating agencies and the nations supporting the EFSF, have agreed to. … And second bond vigilantes have seized control of Italian sovereign debt and are calling interest rates so much higher that now Italy has effectively lost its debt sovereignty. And Greece, according to the news reports, is the Troika’s welfare child, providing for its fiscal spending resources until 2021. Greece’s central bank is no longer its seignior, rather the Troika is Greece’s seignior. Seigniorage is no longer coming from the securitization debt of a sovereign nation state, but rather, Seigniorage for Greece is coming from the Troika. Greece is no longer a sovereign nation state, rather Greece is a country existing in the diktat of a the Troika.
Because Greece is in a currency union, the loss of debt sovereignty for one nation means the loss of debt sovereignty for all, and will mean very soon, the loss of fiscal spending capability for all, as a nation cannot spend that what it does not have, unless it resort to printing Euros, which it does not have the authority to do. There is coming an end to spending more than what one takes in.
The Euro currency union being a debt union, will soon see universal sovereign default, and which will require that leaders meet in summit, and announce regional framework agreements that provide for a Fiscal Union, the empowerment of the ECB as a bank, and the introduction of EU wide structural reforms that greatly reduce the number of state workers, lowering of national wage laws, and the introduction of numerous austerity measures, with the appointment of stakeholders from industry and government to manage resources, credit and economic activity, for the security and prosperity of the region. Such is the mandate of the 1974 Clarion Call of the Club of Rome for regional economic government. Banks will be nationalized, and integrated into the governments, actually the Federal EU government, and be known as the government bank or gov bank for short.
The Automatic Earth relates EU banking credit evaporation and capital depletion. Bloomberg reports that Morgan Stanley predicts that EU (including UK) banks will need to sell assets, reduce lending and overall reduce short-term funding, as much as €2 trillion, other voices say they won't be able to achieve that much, because they can't sell enough assets. Ergo: they’ll need to reduce lending even more. Loomsby Anne-Sylvaine Chassany and Liam Vaughan of Bloomberg write on capital depletion of French banks. French lenders BNP Paribas SA, BNP.EU, Credit Agricole SA, ACA.EU, and Societe Generale SA, GLE.EU, whose share prices have fallen 37 percent, 48 percent and 52 percent respectively this year, were the latest to announce asset reductions after investors shunned their stocks in August on speculation France was facing a credit-rating downgrade and concerns that the banks were too reliant on short-term funding. … And Bloomberg reports Bloomberg Portuguese banks are being squeezed by demands that they boost capital as the government’s effort to reduce the deficit deepens the recession. Echoing the struggles of their Greek counterparts, Portuguese lenders are unable to tap the financial markets for funds and hobbled by debt-laden state companies. At the same time, international regulators are forcing them to raise capital as they’re dependent on the European Central Bank for funds. ‘Being Portuguese is what is penalizing their financing at the moment,’ said Filipe Silva, a fund manager at Banco Carregosa in Oporto, Portugal. ‘Financing will only get better when the state is able to give out signs of credibility’. … I envision further lending reduction and capital depletion of banks, resulting in their nationalization.
Financial Times reports Greece approves austerity bill on first reading A protest by more than 100,000 striking workers did not deter Greek lawmakers on Wednesday evening from approving the country’s latest austerity package at its first reading, by 154 votes to 141. The result, which followed a day when clouds of smoke billowed over the Athens skyline after angry rioters set fire to piles of rotting rubbish and clashed with police in one of the biggest demonstrations seen in the Greek capital for decades, was a success for prime minister George Papandreou, improving the odds that Greece will be able to draw down the next €8bn tranche of its bailout loan from international lenders. Riot police blocked access to the parliament building overlooking Constitution Square, the scene of violent protests last June when the previous austerity package was narrowly approved after a threatened rebellion by socialist deputies.
Mr Papandreou called the government’s 18-month effort to push through fiscal and structural reforms a “war that has to be won.” He pledged the government would stand firm against street protests. The latest round of structural measures, seen as an unprecedented undermining of job security, have prompted strong reaction with 30,000 public sector workers due to lose their jobs by December. The decision to suspend sectoral wage agreements for the private sector, which has seen more than 250,000 jobs cut in the past two years, has triggered fears of large-scale sackings as companies struggle to survive a fourth straight year of recession.
Greece cedes sovereignty. The structural reform to dismiss 30,000 state workers, that G-Pap will carry out are in violation of the Greek Constitution. The abrogation of the Greek constitution is a coup d etat not only in Greece, but in the Eurozone as well, as it will officially create a debt union, and establish the Troika as sovereign authority over the Greek people. By submitting to the Troika’s demands for dismissal of state employees he is waiving national sovereignty, and is taking additional steps forward in a super European Government.
Robert Stevens of WSWS writes PASOK approves further austerity measures for Greece. The government of Prime Minister George Papandreou insisted this week that the passage of the legislation was integral to Greece being able to remain in the European Union and to hold further upcoming negotiations with the “troika” (European Union, International Monetary Fund and European Central Bank) regarding its sovereign debt crisis. Just one PASOK MP, Louka Katseli, voted against the bill as she did not support Article 37 suspending collective bargaining in the private sector. Katseli had previously voted in favour of the overall new austerity law. For opposing one element of the bill, she was immediately expelled from the parliamentary group. The sovereign debt crisis ravaging Greece continues to escalate. It is estimated that by the end of 2012, the total debt owed by Greece to the international banks will reach €370 billion. The government stated earlier this month that without the next tranche of €8 billion, from the €110 billion loan package agreed in May 2010, Greece will go bankrupt.
The money should be released, “as soon as the agreed prior actions on fiscal consolidation, privatisation and labour market reform, which were announced by the government, have been legislated.” Despite the recommendation, it is not certain that the loan will be forthcoming. Kathemerimi said the report “was prepared in coordination with the European Central Bank but not with the International Monetary Fund, the other member of the troika, which is preparing a separate report.” Last month the credit ratings of eight Greek banks were downgraded by two notches by the Moody’s credit ratings agency. Dutch European Central Bank governing council member Klaas Knot, in an interview with Het Financieele Dagblad, said, “I had long been convinced that a default was not necessary. But the news from Athens is sometimes not encouraging. All efforts are aimed at preventing it, but I am now less certain in ruling out a default than I was a couple of months ago”. Knot is the first eurozone central banker to warn outright that the country may soon become bankrupt.
Terrified of workers striking in their millions in a mass rejection of their policies, on Wednesday evening the government moved to end by force the 17-day strike by refuse workers in Athens. The previous day, the government began issuing Civil Mobilisation Orders to the striking workers. According to reports, some 7,000 orders were expected to be issued by Thursday. Based on a law that goes back to World War II, the order allows for the compulsory provision of services. Striking workers are effectively conscripted into the army, with instructions to either to return to work immediately or face imprisonment for up to five years.
Kayleigh McEnany in Daily Caller writes on the patronage and pork of Greece Socialism I imagine the Wall Street protesters would embrace Greece’s unusually generous benefits and massive welfare state, which were put in place by Socialist Prime Minister Andreas Papandreou in the 1980s. The high price tag for the social programs that accompanied Papandreou’s entitlement matrix proved devastating, eventually ballooning Greece’s debt to 162 percent of its gross domestic product. As its debt skyrocketed, Greece’s unemployment rate climbed, hitting 16.5 percent in July. The economy is expected to contract 5.5 percent this year. This economic reality forced Andreas’s son, Socialist Prime Minister George Papandreou, to undo the work of his father.
One of the most powerful union leaders in Greece, Konstantinos Koutsodimos, criticized the prime minister, saying, “This is a political patricide. Papandreou’s policy is a complete betrayal. Before being elected, he promised that he would increase the social welfare state. He said he would increase wages, and in just two months after his election he reversed everything, he forgot all his promises.” But going back on election promises was not a choice; it was a necessity. The very welfare state the Occupy Wall Street protesters so eagerly applaud is what has saddled Greece with colossal debt and left its economy on the brink of collapse, igniting violent protests across the nation.
The WSJ reports Troika Says The Greek Sovereign Debt Is Not Sustainable. And Ben Chu of The Independent reports New Greek Bailout Cash Comes With Dire Warning International inspectors forecast Greek debt will reach 181 per cent of GDP.
Tyler Durden questions the EU’s solvency as it faces a large debt rollover challenge. The €1.7 Trillion Triangle Of Terror communicates that the EU’s The three "problems" are summarized best in a chart by Morgan Stanley's Huw Van Steenis n what we have dubbed the "Triangle of Terror", these are Bank Solvency, Sovereign Stress, Bank Funding Stress. Yet the core problem at the very heart of European instability, is nothing more than, you guessed it, excess debt, €1.7 trillion worth of it to be precise: this is how much debt has to be rolled over the next 3 years, and also explains the magical €2 trillion number needed for the EFSF as only something that big can backstop the debt roll and insure the needed bank recap, which in reality needs more like €400 billion but that is the topic of a different post. Without the above mentioned support pillars of bank solvency, funding and sovereign stress being address and fixed, in a credible manner and at the same time, this debt will not be able to roll, and effectively lead to systemic European insolvency.
European finance ministers and European leaders will be meeting in conference this weekend to address the two causes of European Sovereign Debt Crisis. The first, the lack of any effective means of budget discipline among Euro members, can only be resolved by a Fiscal Union, where a Sovereign dictates structural reforms, such as the termination of the Constitution right in Greece to not be dismissed from a state job, and announces mass layoffs and imposes austerity measures. The second cause of the crisis, is the inability to provide growth where jobs have gone to more competitive countries, cannot be addressed, as jobs that have departed, are now forever gone.
Mark Whitehouse of Bloomberg relates US Money Market Funds Still Exposed To European Crisis and that even a small loss may force a fund to “break the buck”. The U.S. financial sector is gradually severing its links with an increasingly troubled Europe, but the pace probably isn’t fast enough to prevent contagion if things go terribly wrong. The money market funds that hold about $1.5 trillion in U.S. savings would be among the first to suffer if Europe's sovereign-debt problems bring down its banking system. That's because the funds have invested heavily in the debt of European banks, a fact Federal Reserve Chairman Ben Bernanke has publicly noted in assessing the potential repercussions of a European meltdown. The managers of money-market funds recognize the risk, and have been paring their European exposure. Fitch Ratings estimates that as of September, 37.7 percent of all money-market assets were invested in European banks, down from 51.5 percent in May. Still, that leaves the funds' exposure to Europe at more than $500 billion. Even a small loss on such an amount could force a fund to "break the buck," bringing the share price below $1 as the Reserve Primary Fund did after the bankruptcy of Lehman Brothers Holdings in September 2008. That, in turn, could trigger a run on the funds by investors, crippling short-term lending markets on which companies rely for such everyday activities as buying supplies and paying their workers.
Of note, Between The Hedges reports Money Mkt Mutual Fund Assets stands at $2.635 Trillion.
An inquiring mind asks, will the EU find a lender of last resort in the EFSF monetary authority? If not, will leaders be forced to announce a fiscal union and a European economic government?
4) … The investment, currency, fiscal, banking, credit and political policies of Neoliberalism, based upon freedom have failed. Neoliberalism produced the final tulip mania in stocks, bonds and government finance. Neoauthoritarianism is rising to provide new policies based upon diktat.
Neoliberalism, that is the Milton Friedman Free To Choose floating currency regime, has failed, as currencies are not floating, they are sinking in competitive currency devaluation, and as yen carry trade investing has terminated, with the rise of they Yen to a new all time high at 129.41. The US Federal Reserve ability to inflate stock values, and commodity values, and provide for growth through ZIRP, and Quantitative Easing 1, 2, and Operation Twist failed in the May through July 2011 time frame.
Seigniorage, that is moneyness, coming the production of base metals, particularly copper, failed, in July 2011. And seigniorage coming from the securitization of debt, has been comprised, and is coming to an end, as Greece has lost its debt sovereignty. Credit is evaporating. With the failure of Dexia, institutional banking is no longer operative. With the flight of money from Greek banks, and the failure of several banks in Greece, and their acquisition by a special Greek government fund, retail banking has failed. In the case of the Greek people, their seigniorage comes from the diktat of the Troika.
Neoliberalism produced the final fiat wealth bubbles: the stock bubble, ACWI, the bond bubble, BND, and the global government finance bubble, BWX. In Zero Hedge Paul Brodsky writes The Seeds of Our Destruction Were, And Still Are, Sown In The Bond Markets.
Paul Brodsky does not trust the bond markets. That position may seem strange coming from someone who has spent most of his professional career trading bonds, but it's precisely this insider knowledge that has led him to start directing investors to safer harbors. In fact, he thinks our credit system is so far out of control that it will cause a massive, and largely unavoidable at this point, devaluation of the US dollar (and most other fiat currencies, as well). In our interview with Paul, we asked him to explain the reasons for his concern and to detail how he sees a bond market breakdown unfolding. At the heart of the matter is the run-up in overnight systemic repurchase agreements among banks that started in 1994, which goosed the ensuing credit-driven buying orgy in our economy and has left the system much more vulnerable to exogenous shocks as a result. Add to this the lax oversight from the Fed at the time, which as Paul states seemed primarily focused on making sure "banks could expand their balance sheets". At some point, the growing leverage in the system and the rising amount of new credit and money supply leads to ever larger distortions in market pricing. Paul sees this as leading to (soon coming inflation).
And Michael Patterson and Selcuk Gokoluk of Bloomberg report Companies in emerging markets have record amounts of international debt coming due just as financing costs rise to a 16-month high and their currencies sink the most since 2008. Businesses in the 10 biggest developing economies have at least $54 billion of foreign-currency bonds maturing in the next 12 months, the most since Bloomberg began compiling the data in 1999. The market for new international debt issues dried up after emerging-nation currencies tumbled 11 percent from this year’s high” … Chart of India Earnings , EPI, shows the disinvestment out of companies which provide credit in India.
The wildcat finance of Neoliberalism, has produced the final tulip mania. The global investment, economic and political tectonic policies of Neoliberalism have shifted, with the result that an authoritarian tsunami is on the way.
In 1974, the Club of Rome called for regional economic government, as a means of dealing with the chaos of deleveraging, derisking and disinvesting, that would eventually come from the failure of Neoliberalism.
Angela Merkel and Nicolas Sarkozy have heard and heeded the Club of Rome’s vision and called for a true European economic government in their August 2011 Joint Communique.
Neoliberalism is being replace by Neoauthoritarianism as sovereign debt is not fundable.
Neoliberalism featured freedom, and wildcat finance which produced prosperity via rising currencies, credit liquidity, and debt expansion.
Neoauthoritarianism features diktat, and wildcat governance, where leaders bite, tear and rip at one another, which brings forth poverty, austerity measures, structural reforms, regional economic government, credit contraction, and debt servitude for all. Reuters reports Jean Claude Junker saying to Germany’s Focus Magazine on July 3, 2011, “The sovereignty of Greece will be massively limited.” Gordon White relates Say goodbye to independence and sovereignty, Southern Europe and provides a quote from a comment found on the Telegraph Blogs "Thanks to their membership of the eurozone, peripheral countries such as Greece and Portugal and to an increasing extent Spain and Italy, are undergoing a process of forcible deindustrialisation. Their economic sovereignty has been obliterated; they face a future as vassal states, their role reduced to the one enjoyed by the European colonies of the 19th and early 20th centuries. They will provide cheap labour, raw materials, agricultural produce and a ready market for the manufactured goods and services provided by the far more productive and efficient northern Europeans.
Neoauthoritarianism features the seigniorage of diktat. Soon, out of sovereign armageddon, that is a credit bust and global financial breakdown, new sovereign authority will arise in the form of regional economic government, where the word, way and will of the sovereign, the ruler, and the seignior, the banker, will provide moneyness. And the people will be amazed, and follow after it giving it their full allegiance.
The soon coming sovereign armageddon, will be accompanied by a further contraction of credit in China, as reflected in the fall of commodities such as copper, and iron, which has caused debt deflation, that is currency deflation, across the globe, turning the basic material stocks particularly copper miners, iron ore miners, uranium miners, and aluminum producers, lower.
Greece failed to be a sovereign nation state when G-Pap signed the legislation demanded by the Troika that 30,000 state workers be dismissed. Such legislation is an abrogation of the Greek Constitution. The Greeks are no longer a sovereign people, as now both sovereignty and seigniorage belongs to the Toika.
Sovereign nations will soon be a relic of a bygone era. Freedom and choice are mirages on the Neoauthoritarian desert of the real. Sovereignty will soon reside in regional economic government. There are no sovereign individuals, there are only sovereign leaders. The only sovereign wealth is gold and diktat. People will know the seigniorage of diktat.
5) … News of the day
My Budget 360 reports on the dynamics of the ponzi student loan market and relating that the student loan bubble continues to grow larger. The student loan market is back in the news as it makes its unrelenting march to the $1 trillion mark. This crippling figure comes in the face of a decade of lost wages for middle class Americans. Just like the housing bubble people were supplementing a disappearing middle class with more debt. The allure of housing was that never in our history have we seen national home prices fall, until they did in dramatic fashion. The same cultural nostalgia for education in every respect has created a zombie higher education system that is now expanding like the mortgage markets at the height of the housing bubble. Why? For-profit schools have largely lured in countless Americans into a system that has provided very little economic gains for students while enriching these Wall Street listed companies. It should come as no surprise that the highest default rates stem from the for-profit system and most of these loans are federal loans. In 2010 there were $100 billion in student loan originations, the highest ever in the midst of the deepest recession since the Great Depression. The Federal Reserve tracks federally backed student loan debt and the figures are astounding. The only sector of household debt that has expanded in manic fashion during this recession is with student loans. Yet there goes student loan debt saddling countless students with back breaking debt. Make no mistake, much of the for-profits are growing simply because of the government.
USA Today reports The highest default rates are at for profit schools that tend to serve lower-income students and offer courses online. The University of Phoenix, the nation’s largest, got 88% of its revenue from federal programs last year, most of it from student loans. And now, the default rates for these institutions now rival that of subprime debt. After you combine all the federal loans, private bank loans, and private institution loans you can see how this is getting out of hand. $100 billion in student loan debt was taken on in 2010. How much has been pumped out in 2011? Did we not learn anything from the housing bubble? And I add that the USA Today reports "The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York. Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years, a sharp contrast to consumers reducing what's owed on home loans and credit cards." I note that the collateral for the loan is an “education”.
Bloomberg reports Two Iranians Indicted by U.S. for Murder Plot. Two Iranian men were indicted on charges they attempted to use a weapon of mass destruction to assassinate Saudi Arabia’s ambassador in Washington. Manssor Arbabsiar, 56, an Iranian-American car salesman living in Texas, and Gholam Shakuri, who the U.S. said was an Iran-based member of that country’s “Qods Force,” attempted to recruit a man posing as a member of a violent Mexican drug cartel as their assassin, according to a five-count indictment filed today in U.S. District Court in Manhattan. The recruited assassin was secretly working for the U.S. Drug Enforcement Agency, prosecutors said when charges were announced Oct. 11. Others from the Qods Force in Iran were also involved and helped bankroll the plot, which was to have cost $1.5 million, according to a criminal complaint filed at the same time. Both are accused by the federal grand jury of conspiring to commit a terrorist act that would “kill and maim persons within the United States and create a substantial risk of serious bodily injury to others by destroying and damaging structures, conveyances and other real and personal property.”
EU Observer relates that In a joint communiqué, European Council President Herman Van Rompuy and Commission President José Manuel Barroso said that Colonel Gaddafi’s death “marks the end of an era of despotism and repression” in Libya.
Politico writes Herman Cain has used an impressive bag of rhetorical tricks to avoid being pinned down on most questions that can't be answered with "9-9-9." His typical dodge involves describing an issue as very complicated, pointing out that he would want to take advice from a lot of different people, and sometimes - as in the case of most foreign policy questions - saying that he can't really give a complete answer until he has access to classified intelligence. And Politico provides an example ot the Cain tap dance with him saying That's not a simple yes-no answer