Financial market report for Monday December 12, 2011
1) … Stocks, commodities, currencies and world government treasuries fell lower today on rising sovereign insolvency and banking insolvency fears.
Bespoke Investment Group reports EU Debt Spreads Back On The Rise as Moody’s Investors Service Said It Would Review The Ratings Of All The Countries In The Euro Area. Standard and Poor's roiled the markets by placing its long-term sovereign ratings on 15 members of the European Economic and Monetary Union on possible downgrades. Today, Moody's says it will be reviewing the ratings of all 27 EU countries.
Derisking turned World Stocks, ACWI, VSS, EWX, lower as investors sold the European Financials, EUFN, Chinese Financials, CHIX, Italy, EWI, Austria, EWO, Germany, EWG, France, EWQ, South Africa, EZA, Sweden, EWD, Norway, EWN, Poland, EPOL, Europe, VGK, EZU, the BRICS, EEB, Brazil, EWZ, Russia, RSX, India, INP, China, YAO, Turkey, TUR, Financials, IXG, Mining Stocks, MXI, Chinese Materials, CHIM, Steel, SLX, Energy Service, OIH, IEZ, Shippers, SEA, and Junk Bonds, JNK. Semiconductors, SMH, XSD, turned lower as Intel, INTC, trimmed its fourth-quarter revenue outlook.
Silver, SLV, and Copper, JJC, both speculative metals, fell strongly lower, turning silver miners, SIL, and copper miners, SLV, lower. Base Metals, DBB, Timber, CUT, traded lower, turning Wood Manufacturers, WOOD, lower. Coffee, JO, and Natural Gas, UNG, traded lower, turning US Commodities, USCI, and commodities, DBC, lower. Coal miner, BTU, led the Mining Stocks seen in this Finviz Screener VALE, BHP, CLF, AA, SCCO, POT, CF, RIO, BVN, SQM, ACH, MXI, GFI, lower. A small fall in the price of oil, USO, caused a strong sell off in the energy companies, WCAT, PSCE, XOP, and a strong sell off in the individual energy stocks seen in this Finviz Screener.
Debt deflation, that is currency deflation, was manifested, taking world currencies, DBV, and Emerging Market Currencies, CEW, Commodity Currencies, CEW, lower.
Competitive currency deflation was the order of the day as currency debasement was evidenced in World Treasuries, BWX, turning lower. Strong derisking out of the currencies seen in this Finviz Screener, FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, drove the US Dollar, $USD, UUP, rose to 79.5. All of the world major currencies, DBV, and emerging market currencies, CEW, are now in monthly decline. One of the strongest unwinding carry trade of the day was the Brazilian Real/Japanese Yen, which caused the Brazilian Shares, EWZ, BRF, BRAF, to trade strongly lower; Brazilian home builder, GFA, was a derisker of the day. Deleveraging out of the Mexico Peso, FXM, drove Deleveraging out of the Mexico Peso, FXM, turned Cemex, CX, Telefonos de Mexico, TXM, America Movil, AMX, lower. The USD/JPY seen in this ongoing Yahoo Finance chart rose from 77.5 to 77.9.
Gold, GLD, is a currency. Its fall lower from a consolidation triangle today, drove gold miners, GDX, and Junior Gold Miners, GDXJ, lower.
2) … A bank run is rumored to be underway in Latvia … Will EU banks be nationalized soon?
AP reports Markets Fall As Mood Darkens Over EU Crisis Pact. Enthusiasm for riskier assets such as stocks and the euro faded Monday as investors worried that Europe's new pact aimed at fixing the continent's debt crisis would be insufficient.
Simone Foxman of Business Insider presents the 20 most troubled European Banks. One is Dexia, Europe’s Investment Banker that underwrote French municipal debt and retained much of it. Others are banks that invested in Greece’s and Italy’s debt when the Euro was introduced and acted as conduits for carry trade investing in Brazil and Latin America.
Bloomberg reports EU Banks Taking Government Cash Seen Sparking 'Vicious Cycle'. European banks turning to their governments to raise required capital could trigger a downward spiral of declining sovereign-debt prices and further losses for the lenders. The European Banking Authority ordered the region’s banks on Dec. 8 to raise 115 billion euros ($154 billion) by June. Faced with dwindling profits and unable to tap capital markets to sell new shares, firms may be forced to seek government help. About 70 percent of the capital requirement falls on lenders in Spain, Greece, Italy and Portugal, countries struggling to convince the world they can pay their debts. “If the Southern governments put money in their banks, their sovereign debt will go up, exacerbating their problems,” said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels. “Then the banks’ losses will rise because they hold the government debt. That’s a vicious cycle. It’s hard to know which one to stabilize first, the sovereign bonds or the banks.” European Union leaders meeting in Brussels last week agreed to move toward a closer fiscal union, with harsher penalties for countries violating budgetary constraints. With the action, German Chancellor Angela Merkel and her counterparts aim to stem the erosion of confidence in the ability of some nations to pay their debts. Market reaction to the announcement was mixed, with stocks climbing and bonds falling.
A massive economic deleveraging is coming when the European Banks fail. Handelsblatt reports Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, has honed its plans developed following the 2009 financial crisis and is prepared to act if markets dive, Chief Financial Officer Friedrich Eichiner said in November. The Munich-based carmaker’s response would include reducing production by as much as 30 percent and using its banking unit to directly tap central bank reserves. The company also has reduced its leasing portfolio to manage risks in case used car values decline.
Neoliberalism featured not only a rush to invest in Greek banks but to invest in Eastern Europe as well. The potential to score big gains from rising currencies stimulated a hot money flows out of Europe into Latvia, Poland, Hungary and other developing Europe countries. Nowe, the WSJ reports Europe's Banks Retreat From the East. Dozens of euro-zone banks flocked to Eastern Europe in recent years, hoping to harness the region's fast-growing economies and relatively untapped banking markets. Amid Europe's banking crisis, the situation has suddenly been thrown into reverse. Banks are beating hasty retreats from the region, scrambling to conserve limited resources and facing pressure to concentrate on their domestic markets. The withdrawal is fanning fears that the economies of Eastern Europe, which so far have held up reasonably well despite the crisis to the west, could fall victim to a downturn
Bloomberg reports International Debt Sales at 6-Year Low on Euro Crisis, BIS Says. The euro-region’s debt crisis has affected financial markets globally, pushing up borrowing costs for banks and triggering sell-offs in emerging-market assets, according to the Bank for International Settlements. Gross debt issuance in international markets dropped to $1.66 trillion in the three months through September, the lowest since 2005 as buyers demanded higher compensation for risk, the BIS said in its Quarterly Review. Investors withdrew more than $25 billion from emerging-market funds in August and September as they sought to either reduce risk or sent money home to repair their balance sheets, it said. “News on the euro-area sovereign debt crisis drove most developments in global financial markets between early September and the beginning of December,” the report said. “Financial institutions with direct exposure to euro-area sovereigns saw their costs and access to funding deteriorate.” The problem was exacerbated by a deteriorating economic outlook, the BIS said. The European Central Bank on Dec. 8 revised down its growth forecast for next year to a range of minus 0.4 percent to plus 1.0 percent, from 0.4 percent to 2.2 percent previously. Ongoing Yahoo Finance of BWX, PICB, EMB.
Bloomberg reports Funds Cut Bets on Rising Food Costs to 27-Month Low: Commodities. Hedge funds cut bullish bets on agricultural prices to the lowest in more than two years on signs of expanding global supplies. A measure of speculative positions across 11 products from wheat to coffee to cattle fell 3.6 percent to 258,071 futures and options in the week ended Dec. 6, Commodity Futures Trading Commission data show. That’s the lowest since September 2009. Bullish wagers on corn fell 11 percent to a 17-month low, and bearish ones on cocoa increased for a fourth week. Ongoing Yahoo Finance chart of FUD, GRU, WEAT, JO, COW shows grains are leading the way down.
The ongoing Yahoo Finance chart of India, INP, compared with other fast depreciating country ETFs, INP, EZA, EWZ, EPOL, EIS, ECH, EWI, TUR, ARGT, EWO, RSX, shows that over the last three months India has been the fastest depreciating country. This is due in large part to carry trade investments being liquidated; its a case of hot money flow in and hot money flow out, as well as a case of intensifying population, corruption, and scarcity of water problems.
The Indian Rupe has been the fastest depreciating as is seen in the ongoing Yahoo Finance chart of ICN, FXA, FXE, FXM, FXC, FXB, FXS, SZR, FXF, BZF, FXRU. The deleveraging out of India Stocks, is largely one of capital flight out of its banks, IBN, and HDB. The India small cap stocks, SCIF, are highly dependent on credit, and a collapse in lending as well as capital outflows through carry trade liquidation, is causing a faster deleveraging out of the small cap shares compared to the large cap ones, as is seen in the chart of IBN, HDB, IBN, and SCIF.
Not only are the BRICS, EEB, but the emerging markets, EEM, are experience debt deflation, as emerging market currencies, CEW, are rapidly falling, reflecting deleveraging and derisking out of emerging market mining, EMMT, and emerging market financials, EMFN, FGEM.
China Industrials, CHII, Steel, SLX, Metal Mining Stocks, XME, and the mining stocks, seen in this ongoing Yahoo Finance Chart MXI, CHIM, COPX, ALUM, URA, KOL, SIL, REMX, are leading the way down as the European Financials, EUFN, Global Financials, IXG, Financials, XLF, Investment Bankers, KCE, and Banks, IAT, KBE, KRE fall lower. Tyler Durden writes Forget Copper: Steel Is The True Indicator Of The Chinese Hard Landing. Coal, KOL, and Copper, COPX, were strong fallers today. Chemical Manufacturers, DD, ALB, ASH, WLK, HUN, CYT, traded sharply lower.
India is characterized by inflation destruction, which is he fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies. Inflation destruction commenced in Brazil Financials, BRAF, and in the Chinese Financials, CHIX, and in the high growth Brazil Small Caps, BRF, and Chinese Small Caps, HAO, in November 2010; and in Coal Producers, COAL, in January 2011 as is seen in the chart of BRAF, CHIX, BRF, HAO.
Inflation Destruction may precede Debt Deflation which is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.” The Age of Leverage was characterised by debt expansion, credit liquidity, stability, economic growth and expansion and prosperity … and passing into The Age of Deleveraging characterised by inflation destruction, debt deflation, credit ill-liquidity, instability, economic contraction and austerity.
Tyler Durden reports Some Of The Ugliest Macro Data We Have Seen In A While Comes Out Of India as it's Industrial Production growth missed expectations by a mile falling to levels only seen in the middle of the global economic shutdown in Q1 2009.
Inflation destruction is synonymous with destructionism. Neoliberalism featured inflationism that came from ponzi lending of all types such as GSE lending, HELOC lending, and copper commodity funded shadow lending in the city Wenzhou China. Now with rise of sovereign and banking insolvency in the EU, as well as an exhaustion of credit expansion globally, especially the pricking of the global government finance bubble, deflationism is commencing, and that is introducing Neoauthoritarianism features the seigniorage of diktat, such as the introduction of a fiscal union in the EU, and the appointment of technocratic government in the profligates.
Out of Mediterranean Sea countries, the Beast regime of regional global governance, and statism, is rising globally. This monster has seven heads, symbolic of its occupation in mankind’s seven institutions, and ten horns, symbolic of its rule in all of the world’s ten regions. The Beast regime is also known as the Ten Toed Kingdom of regional global governance.
Fate is passing the baton of sovereignty from nation states to regional authorities such as the EU ECB and IMF troika. The 1974 Clarion Call of the Club of Rome for regional economic government is delivering sovereign authority out of nation states and into the regional authorities as Leaders meet in summits and waive national sovereignty and announce regional framework agreements such as the December 9, 2011 EU Leaders’ Fiscal Compact, designed by Herman van Rompuy, which establishes a Eurozone Fiscal Union.
Libertarians rejoiced that the UK and its financial district, the City of London, is going to be independent from the EU. British sovereign Ambrose Evans Pritchard writes on Europe's Blithering Idiots And Their Flim Flam Treaty The whole purpose of monetary union for Paris was to tie down a reunited Germany with silken cords. But the vain and hysterical little man now in the Elysée will soon be gone. A leader will emerge once more with a "certaine idée de la France”, certain idea of France.
Austrian Economist Mike Mish Shedlock writes I cannot possibly agree more with Pritchard's statement "Seize the moment of liberation, and enjoy it." Indeed Pritchard should be grateful for the arrogance of Merkozy. In a highly entertaining video interview with Nigel Farage has exactly the right idea: Escape Euro Prison! the Euro ship is headed down, torpedoed by arrogance of two leaders whose only concern is their own political legacy. Sarkozy and Merkel can bask in the limelight of false hope for now, but both will be gone in the next elections. History will not be kind to Merkozy, nor to Jean-Claude Trichet, nor any of the other Eurofools who think politics trumps economic reality.
Mr Shedlock and Libertarians do not understand that fate has already written the script, and that destiny is providing dignitaries such as Angela Merkel and Nicolas Sarkozy who are working for a true European economic government, as they wrote in their Joint August Comminique, and dignitary Jose Manuel Barroso who called for a new Federalist Moment and dignitary Herman van Rompuy whose ideas underwrote the Leader’s Fiscal Union; hes poke in press conference presenting a Extract On Intergovernmental Agreement and Informal Dinner Of Heads Of State Or Government and Extract On Intergovernmental Agreement with photo from Colonel Flick. Here is the statement by the Euro Area Heads of State.
Sovereignty comes by appointment and not by either nature or the popular vote of democracies. There is no human action, rather all is of destiny; and it is effecting a Eurozone coup de Etat.
As Die Zeit, noted the Leaders meeting constituted a “European day of destiny.” which would establish nothing less than “the future of Europe”.
The New Europe is emerging along a German France axis. Ian Tranor of the Telegraph reports As The Dust Settles A Cold New Europe With Germany In Charge Will Emerge. After the EU summit, the prospect is of a joyless union of penalties, punishments, disciplines and seething resentments.
Reuters reports Napoleon dreamed of it, De Gaulle fought for it, but Nicolas Sarkozy may have achieved it, a Europe of Nations with France in the cockpit and Britain on the sidelines. The French president emerged as one of the big winners of a European Union summit on Friday which ended with up to 26 member states agreeing to move forward in economic integration around the euro zone, and Britain alone in staying out.
The leaders have heard and heeded the 1974 Clarion Call of the Club of Rome for regional global governance as a means of providing security and stability out of the chaos that comes from deleveraging and derisking from the Milton Friedman Free To Choose floating currency regime, known as the Banker Regime of Neoliberalism.
The new Beast Regime of Neoauthoritarianism is rising out of technocratic government in Italy and Greece, and the EU Leaders’ fiscal compact. Robert Stevens of WSWS reports of the severity of the new governance writing Greek Government Imposes New Austerity Budget.
The seigniorage of fiat money is diminishing, and the seigniorage of diktat is rising, as Leaders meet in summits and announce framework agreements, that for now waive national sovereignty and will one day establish sovereign authority in regional councils.
Charles Hugh Smith writes in Zero Hedge When Things Fall Apart: Disorientation, Desperation, Chaos
Yet, fate will bring forth a resolution of the crisis and an even deeper eurozone integration. A credible sovereign stands in the wings. He and his banking partner will come to rule a united Europe through yet another and even more powerful stability compact than the signed December 9, 2011; and this superior fiscal compact will be never, ever, be voted on. At the appointed time, not any human action, but rather, fate will open the curtains, and onto the Europe’s stage will step the Europe’s New Charlemagne and his Banking Partner. These sovereigns will develop the Eurzone into a type of authoritarian revived Roman Empire. These sovereigns, and their committee will be Europe’s financial supervisor, and will oversee the seigniorage of diktat. Their word, will and way of will provide a new moneyness, and the people will be amazed and follow after it, placing their confidence and trust in it, giving it their full allegiance.
A ten toed kingdom of regional global governance is rising to displace the two iron legs of world power, the UK and the US, which have governed the world for the last 150 years. The Sovereign and the Seignior will be in charge in the Eurozone; their rule will be the premier example of regional diktat, as ten tings rise to rule in each of the ten toes.
Destiny is working to bring Germany forth as a powerful overlord in the Merkel, Sarkozy, and van Rompuy future, as Robert Wenzel writes On Its Way: The United Europe of Germany, where Merkelism, the bold strategy of Angela Merkel to establish a New Europe as a stability union, that is a fiscal union, governs, as Nordic leaders rule over their fiscally profligate Latin peers for the security and stability needs of Europe. The strategy is reflected in the Reuters report EU Leaders Agree On Fiscal Pact, ECB Douses Hopes, which quotes the French and German leaders saying, "We need more binding and more ambitious rules and commitments for the euro area member states," Sarkozy and Merkel wrote in a letter to European Council President Van Rompuy, who has made his own proposals for tackling the crisis.
The triumvirate of Angela Merkel, Nicolas Sarkozy and Herman van Rompuy are rising in power to displace the power of the UK and the US. Said another way, the power of NATO will be channeled through Europe’s New Charlemagne, and his revived Roman empire. The EU will become the new world superpower, taking the lead out of global debt and banking crisis.
Other world regions such as Latin America Bloc, as Timur Zolotoev writes in Global Research 33 Latin American Countries To Form A New Bloc. U.S. And Canada Not Invited. The Community of Latin American and Caribbean States, CELAC, pointedly excludes the US, Canada and Britain, as it forms a economic and political union and Eva Golinger reports A Union Of Latin American and Caribbean States, CELAC, Is Born
The credit boom has turned to credit bust, with the result being a capital flight to US Treasuries and Gold. The safe haven flight of capital is seen in the chart of ZROZ, TLT, IEF as well as in the chart of gold, GLD, despite its drop today, it maintains its value as the world’s sovereign currency.
Banks falling strongly lower today include National Bank of Greece, NBG, Royal Bank of Scotland, RBS, Lloyd Banking Group, LYG, ICICI Bank, IBN, Barclays Bank, BCS, Bank of Ireland, IRE, HDFC Bank, HDB, Deutsche Bank, DB, and Banco Bilbao Vizcaya Argentaria, S.A., BBVA, Woon Finance, WF, KB Financial, KB, Shinhan Financial, SHG, Citigroup, C, Bank of America, C.
Zero Hedge reports Rumor Of Swedbank Failure Results In Second Latvian Bank Run
The Guardian reports Europe Is Locked In A Dance Of Death With Its Banks. And Bob Adelman of the New American writes Back Door Bank Runs In Europe Have Started. In his interview at King World News, James Turk, founder of GoldMoney and author of The Coming Collapse of the Dollar, noted in his travels around Europe that “there is one common trait, regardless of which country I am in: people are really frightened about the possibility of the collapse of the euro. Money continues to move out of the European banking system.”
Harry Wilson at the Telegraph reports of collateral crunch, Eurozone Banking System On The Edge Of Collapse. The eurozone banking system is on the edge of collapse as major lenders begin to run out of the assets they need to keep vital funding lines open. Bank deposits with the ECB now stand at their highest level since June 2010 at €905bn (£772bn) as lenders withdraw deposits held with their peers and put them into the central bank. At the same time, banks in major eurozone countries such as France and Italy have become increasingly reliant on central bank funding. This follows the trend seen in smaller countries like Ireland where lenders have effectively becomes taxpayer-funded "zombie" banks. Alastair Ryan, a banks analyst at UBS, said: [..] "The system at the moment hasn't got funding of a duration that allows it to function, so it's failing," [..]
Illargi of The Automatic Earth comments these are the same banks that the same Harry Wilson reported earlier this week hold $2.35 trillion of toxic assets, $721 billion for British banks, and $700 billion for German banks.
Gary of Between reports a Eurozone credit freeze suggesting that European banks are insolvent and that growth in Asia has collapsed. The TED spread continues to trend higher and is at the highest since June 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -4.4% to -127.75 bps(back to late-Nov. levels). The Libor-OIS spread is very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.9% since February 16th and -23.6% since Sept. 7th. The Citi Asia-Pacific Economic Surprise Index fell -8.5 points today to -25.30, which is the worst since April 2009. Asian equities continue to trade very poorly. India, INDY, shares fell -2.1% and are now down -22.6% ytd. The Shanghai Composite, CAF, broke down to the lowest level since March 2009 overnight and is now down -18.4% ytd
Is a global banking Lehman moment at hand?
An inquiring mind asks, will the global banks seen in this Finviz Screener, be nationalized? Will they become known as government banks, or gov banks for short.
Elliott Wave International asks What Is Backing Your Deposit In The bank? In the age of deleveraging the only forms of sovereign wealth will be diktat and gold bullion.
3) ... News of the day
Lance Roberts of StreetTalkAdvisors writes The STA Risk Ratio Indicator Is Behaving Very Similarly To The 2008 Market Topping Process.
A Global Eurasia War centered in Syria and Iran is coming soon. Bloomberg reports U.S. to Give Jordan $120 Million in Support, Al Ghad Reports. The U.S. is due to transfer $120 million to Jordan by the end of the year as part of promised assistance for the kingdom’s efforts to introduce changes, Al Ghad said. The move came after Jordan implemented a series of measures to improve the business environment, promote investment and enhancing transparency, the newspaper said, citing an unidentified Jordanian official. The U.S. transferred $64 million to Jordan in November, it said. U.S. annual assistance to Jordan totals $660 million, of which $360 million is in economic assistance and the remainder in military aid, it said.
Theyenguy news service relates Redfin provides selling prices for a 3 bedroom and 2 bath houses in the following neighborhoods as follows: Westpark, 92606, $605,000; Woodbridge, 92604, $650,000; Northwood, 92620, $690,000.
Stocks: CAF, INDY, BSBR, ITUB, BBD, IBN, HDB, UBS, RBS, SAN, DB, LYG, BCS, HSBC, IRE, BCH, ITCB, BSAC, WBK, CS, BLX, FGEM, EMFN, RY, BMO, BK, BAC, C, QABA, KRE, RWW, IAI, KCE, MTU, NMR, MFG, BBVA, BMA, BFR, GGAL, SHG, KB, WF, CHIX, BAP, IXGGY, CIB, ACWI, VSS, EWX, EUFN, EWI, EWO, EWG, EWQ, EZA, EWD, EWN, EPOL, VGK, EZU