Financial market report for Wednesday January 18, 2011
1) … Introduction
The new dimension of globalism, is security and stability, replacing growth and prosperity, as destructionism is now operating to replace inflationism. Out of the S&P sovereign downgrade and the soon coming default of Greece, the dynamic of destructionism will produce a region of global governance where the dynamo of diktat will provide both moneyness and political rule. Catalysts of the loss of debt sovereignty and regional trade imbalances will cause EU leaders to meet in summits and waive sovereignty to establish a Federal Europe with a fiscal union and empower the ECB or the Bundesbank, that is Buba, as the Euro’s Bank. Out of a global credit breakdown and financial collapse, fate will establish regional global governance in all of the world’s ten regions. The age of democracy is being replaced by the age of the ten toed kingdom of regional global governance.
2) … A new dynamic and a new dynamo will produce a new Europe as part of a global scheme of regional global governance.
Political conflicts in Europe may mean that Angela Merkel and Nicolas Sarkozy will not be able to stay in office, but this does not mean the destruction of the Euro zone, as fate is effecting a coup d etat, through the destruction of fiat money. The death of fiat money commenced in July 2011 with world currencies, DBV, and emerging market currencies, CEW, trading lower as investors became concerned that a debt union had formed in the EU. This has caused the investment, economic and political tectonic plates to shift, with the result that an authoritarian tsunami is on the way.
Phillip Lane in Irish Economy provides a review of the S&P European Sovereign Downgrades
Countries such as Greece have lost their monetary sovereignty. Portugal as it is now in default, and Spain and Italy have lost their monetary sovereignty as well, this being acknowledge by the S&P sovereign debt ratings downgrade. Investment capital is being destroyed by debt deflation, that is currency deflation; and now, political capital is rising in its place.
The dynamo of choice provided by the Milton Friedman Free To Choose Script, that governed for the last forty years is history. Now the dynamo of diktat, implied in the 1974 Clarion Call by the Club of Rome for regional global governance, is rising to govern human economic and political activities.
Regionalism is replacing capitalism. The loss of debt sovereignty will be a catalyst for the formation of a European Super State based upon unified fiscal rules. Regional bank failures and national Treasury auction failures will be several of the defining issues of the year, as the decade long debt trade is collapsing in unresolvable trade imbalances. The debt trap is coming forth in collapsing growth. Through creative destructionism, a Joseph Schumpeter term, banks will be nationalized, better said regionalized. And fiscal spending will be directed by monetary cardinals. According to Irving Fisher’s theory of debt deflation, Europe’s excessive credit will lead to a new beginning: the seigniorage of diktat, that is the moneyness of diktat.
Excessive debt, public debt and neo liberal finance is the highway to depression. Stephen Kinsella writes in Irish Economy Evidence from the UK on the link between Debt and Depression. The new issue of the Economic Journal carries the fascinating John Gathergood study Debt and Depression: Causal Links and Social Norm Effects from the the UK on the links between increased debt burdens and depression. And Charles Hugh Smith from Of Two Minds writes You Can't Fool Mother Nature For Long: The Substitution of Debt for Productivity. The "big story" of the U.S. economy is that we have substituted expansion of debt for meaningful increases in productivity.
For the past 30 years, the U.S. economy has become increasingly dependent on explosive debt expansion for its "growth" rather than on meaningful rises in meaningful productivity. Growth is in quotes because growth based on secular increases in productivity--that is, the same investment of labor and capital produces goods and services of greater value--is qualitatively different from "growth" based on a pyramiding of debt.
Real growth based on rising productivity is sustainable, "growth" based on ever-greater expansions of debt is not. This substitution of public debt for private debt is simply an attempt to fool Mother Nature. The justification of the Status Quo for impoverishing future generations is the massive expansion of Federal debt is needed to "kick start" the economy, i.e. "get us through a rough patch."
That's what happens when you try to fool Mother Nature by substituting debt expansion for increases in meaningful productivity. Eventually the surplus that is being leveraged into debt reaches the point where it cannot leverage any more debt, and the over-leveraged borrower defaults at the first financial bump. An economy that is dependent on constant massive increases in debt to fund its "growth" is not sustainable. In a very real sense, the U.S. has been fooling Mother Nature for 30 years. Now we've over leveraged the nation's shrinking pool of surplus capital and assets, and the last rabbit has been pulled from the magician's hat. Mother Nature (i.e. reality in the form of a transparent, marked to market balance sheet) is about to take her revenge on all those who reckoned she could be fooled forever by ever-expanding debt.
Reuters reports of the beginnings of economic diktat and fiscal diktat, ECB Mulling Alternatives to Bond-Buy Plan. The European Central Bank is exploring alternatives to its controversial bond-purchase program but has yet to decide on any replacement policy tool, ECB Governing Council member Ewald Nowotny told a German website in comments published on Tuesday. Nowotny, who is also Austria's national central bank chief, said there was skepticism on the policymaking Council about the bond-buy program "because we fear the market imperfections that we want to correct with this could emerge in another area." … "We are discussing possible alternatives. But this discussion is not so far developed that we can dispense with the SMP (bond-buying program)," Nowotny told the Wall Street Journal's German website. He declined to say what direction the talks were heading in, adding only: "That is a discussion that encompasses the whole monetary policy spectrum." "The need for some type of intervention is widely recognized," he said.
Reuters continues, On one hand, the ECB is under political pressure to take more aggressive action to put an end to Europe's debt crisis. On the other, many voices inside Germany, led by the Bundesbank, oppose both bond-buying and anything beyond that. The Bundesbank feels the bond-buying program - never mind the outright "quantitative easing" that many economists have called for - takes the ECB into the realm of fiscal policy and away from its core role of delivering stable prices. The ECB more than tripled its bond purchases last week to the highest level since late November, spending 3.77 billion euros as a calm start to the New Year gave way to an intensification of the euro zone debt crisis. The bond purchases face renewed scrutiny after Standard & Poor's mass euro zone rating downgrades on Friday, though the ECB has resisted political pressure from within and beyond the euro zone to step up the program on a major.
Regional trade imbalance is another catalyst for a Federal Europe. Germany exports products to the peripheral European countries, which run trade deficits. Greece has a trade deficit of about 10% of GDP. Greece must have a trade surplus if public debt as well as business credit and stock leverage is to be reduced. Until Greece runs a trade surplus, Greece cannot get their government and private budgets under control. Greece must cut its fiscal expenditures and/or raise taxes even further. As Greece does this, the Greek economy will continue to shrink, making it more difficult buy foreign goods. This leads to a deflationary spiral. And that same deflationary spiral will spin up to take in all of Europe. German excess export capacity will encounter dwindling demand in peripheral Europe in an ever increasing way.
Being part of the EU, Greece cannot print its own money, so unless it leaves the Eurozone, it’s stuck. A default by Greece is being reported by many as coming soon. Bloomberg reports Pimco's Bill Gross Says Greece To Default Followng Downgrades. Rachel Donadio and Niki Kitsantonis of the NYT report Europe Now Doubts That Greece Can Embrace Reform.
Sovereign default is imminent for Greece. A default by Greece means that it will be shut out of the bond market and will need seigniorage aid, that is fiscal aid, from the EU ECB and IMF Troika. Greece does not now have, nor will it have after its soon coming default, debt sovereignty, as it is a hopelessly insolvent nation. Greece will massively lay off state workers as its constitutional prohibition on dismissal of public workers is abandoned. Structural reforms will open closed professions and dishonor national wage contracts which will reduce private industry wages by least by 30%. What little state industry exists in Greece will be eliminated or privatized. Greek socialism is a bankrupt economic policy. Greek Socialism soon and European Socialism eventually are going to the slaughter house.
As the deflationary spiral spins up, eating away at the core nations, Germany will have fewer exports. This productive powerhouse, with its technology, industrial, natural resource and culturally productive workers will forever be out of balance with its periphery peers. The Nordic Latin gulf in the factors of production and the resulting trade imbalances is now and will always be stunningly significant. The German to continent economic differential is the propelling factor for a European political union, where a German led European Superstate will emerge out of the current trade, banking and government debt crisis. The Eurozone economic divide is leading to a Euro zone political union.
The spectre of sovereign default in the EU periphery has become more real. Financial Times reports Portugal Moves Into Default Territory. Portugal is trading in default territory after investors offloaded the country’s bonds this week amid rising fears of contagion. Worries are mounting that the private sector and Greece will fail to agree a restructuring package for Athens’ debt. The sovereign debt bubble is bursting.
These two catalysts, the loss of debt sovereignty and regional trade imbalances, will cause EU leaders, that is, monetary cardinals, a Steen Jakobsen term, to meet to establish a unified federal authority, mandate a European fiscal union, and establish either the ECB or the Bundesbank, that is Buba, as the Euro’s Bank and establish stakeholder committees to manage the economy and provided credit to companies essential to the security and stability of the Euro zone. Along this line of thought Jean Pisani-Ferry writes the policy paper A New Trinity in Irish Economy suggesting a broader European Central Bank mandate, the building of a banking federation, and fiscal union with common bond; and presents a limited, experimental scheme through which trust could be rebuilt. Yes, a New Trinity for a New Europe.
Phillip Lane of Irish Economy relates that European Federalist thought leaders David O'Sullivan and Joschka Fischer recently presented their thoughts at the Henry Grattan Lecture The End of the European Project?
A world wide credit bust and global financial collapse is coming. This Eurodämmerung, and Global Götterdämmerung, that is a clash of the current sovereign authorities with investors, will destroy credit and money, as they have been known. Out of the ensuing chaos, fate is working through destructionism, to establish regional global governance.
Kings have ruled mankind throughout history; these have included Nebuchadnezzar ruling Babylon; Cyrus and Cyrus and Darius ruling Merdo Persia; Charlemagne ruling Rome; Tony Blair ruling Great Britain, Angela Merkel ruling the EU, and George Bush, The Decider, ruling America with Unilateral Authority. Soon ten kings will come to rule, each in his own regional power base. Most recently two iron kingdoms, the combine of the UK and European rule, and the US Hegemony, have governed the world; their power is now flowing into a ten toed kingdom of regional global governance.
Fate, not any human action, will bring forth a revived Roman Empire, that is a German led Europe. In the supranational New Europe, national sovereignty will be seen as a relic of a bygone era.
Matthias Matthijs and Mark Blyth of The Council on Foreign Relations, CFR, weigh in relating Why Only Germany Can Fix the Euro. Throughout much of the twentieth century, the "German Problem" -- the fact that Germany was too strong, too powerful, and too economically dynamic for the rest of Europe -- bedeviled European elites. "Keeping Germany down" through NATO and European integration was seen as the solution. The problem today is not German strength but German weakness -- a reluctance to take up its hegemonic role. It is not too late for Germany to change course. Even though they have profited handsomely so far from the current arrangement, they must realize by now that its model was always based on shaky foundations, cannot be generalized to all states, and has reached the limits of its sustainability. If the euro ends up collapsing, and the European Union with it - Germany will clearly be much worse of. Many of its markets will disappear while the new deutschmark soars to unknown heights. In such a world, the 'old' German problem would be back at the heart of the New Europe. Former U.S. Secretary of State Dean Acheson once observed that the United Kingdom had lost an empire but had yet to find a role. In a way, by signing the Maastricht Treaty in the early 1990s, Germany has accidentally grown an economic empire. It has a role, a leader, not a rule maker, but is clearly not yet conscious of it.
Europe’s Leader, the Sovereign, and Europe’s Banker, the Seignior, will have have EU wide sovereign authority. The seemingly Little Authority, will work behind the scenes in regional framework agreements to change our times and laws. He will mandate sweeping economic and political changes. And he will substitute his word, will and way for the rule of law. People will be amazed by this, and place their faith and trust in the Sovereign; they will give their allegiance to his diktat.
Life in Europe will be characterized as a totalitarian collective. Totalitarian collectivism is the EU’s future. European Socialism will die in 2012. Diktat will provide seigniorage to replace the seigniorage of treasury bonds. Diktat will become a currency, that is a payment used in the exchange of goods or services.
The seigniorage of fiat money is failing, and the seigniorage of diktat is rising in its place, as is seen in the rise of power of the EU ECB IMF Troika to appoint technocratic government in Greece and Italy. Choice came by Milton Friedman; it is now an epitaph on Neoliberalism’s tombstone. Libertarianism’s desire for Freedom and Free Enterprise is a mirage on the Neoauthoritarian Desert of the Real. There will never be a free market monetary system, as hoped for by F.A. Hayek, Murray Rothbard and other Libertarians.
The Beast regime of Neoauthoritarianism, is rising to replace the Banker regime of Neoliberalism. This monster of statism and collectivism is rising from the profligate Mediterranean countries of Italy and Greece. The Beast’s seven heads are rising to occupy in all mankind’s institutions, and its ten horns are rising to govern in all of the world’s ten regions. The Beast regime is coming like a terminator that can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until mankind is totally dominated and subdued.
3) … Mario Draghi has engineered a Eurozone 3 Year bond yield decline … A possible One Trillion LTRO operation on February 29, 2012 may further monetize debt resulting in a even lower Euro, even though at this time European Financials are rising strongly on credit liquidity.
Tyler Durden in Zero Hedge asks A Shocking €1 Trillion LTRO On Deck? Chris Wood of CLSA's famous Greed and Loathing newsletter, in which the noted skeptic does an about face on his existing short European financial trade and covers such exposure, while observing the much-discussed major shift in ECB liquidity provisioning as the catalyst. As he says, "the main reason to do [cover the Euro short fin trade] is the potential for a benign interlude provided by the ECB’s increasingly aggressive liquidity support for the European banking system."
What is interesting is the basis for the material change in exposure which to Wood is explained simply by the dramatic shift in the ECB approach toward monetary generosity, courtesy of the arrival of ex-Goldmanite Mario Draghi. The basis is the first noted here massive surge in the European balance sheet (Figure 2) which while not engaging in prima facie monetization, has done so via indirect channels, in the form of an LTRO, which is basically a 1%, 3-year loan, but more importantly, a balance sheet expansion which while having failed to increase the velocity of money in any way (with all of the LTRO and then some now having been redeposited back at the ECB as reporter earlier), has at least fooled the market for the time being that any sub 3 Year debt is "safe" as seen by Figure 1.
Chris Wood: “By creating a massive incentive for European banks to buy their government’s debt issuance up to three years maturity, the new ECB leader Mario Draghi is clearly seeking to get control over the direction of Eurozone government bond yields. The dramatic decline in Eurozone bond yields up to three years suggests he is getting some traction (see Figure 1). It is also the case that absolute-return investors may be tempted to “front run” coming bond auctions if they think the ECB policy is working. On this point, market talk is focusing on an even bigger amount to be borrowed at the next 3-year longer-term refinancing operation (LTRO) due on 29 February. GREED & fear has heard guesstimates of up to €1tn!”
Tyler Durden; “The result is an exploding balance sheet controlled, of course, by an ex-Goldmanite, which can only be halted by Germany, but why when the EUR is crashing, keeping the German export economy vibrant”
Chris Wood: “Draghi’s responsibility is monetary policy not fiscal policy. And based on GREED & fear’s observations thus far, it is clear that former investment banker Draghi is a smooth if not slick operator who is adept at saying one thing and doing another. He will also understand that the goal of monetary easing will be undermined if it arouses German opposition. For that reason investors should assume for now that he will have the political skills to keep the Germans onside. Meanwhile, for the moment it is politically correct in Berlin to keep the banking system liquid via ECB extension of credit courtesy of dramatically relaxed collateral standards, even if it is not yet “PC” to monetise Eurozone government debt outright. The resulting backdoor quanto easing in Eurozone is clear from the recent surge in the ECB’s balance sheet relative to the Fed’s.”
4) …. A top is forming in Financials And Semiconductors suggesting a top is near for the S&P.
OptionTraders relates Strong Dollar And Weak Earnings Report Indicate A Top A Top Is Near For The S&P. The XLF and SMH daily charts illustrate that a major top may be forming in both sectors.
It is common knowledge that broad indexes such as the S&P 500 and the Dow Jones Industrial Average struggle to rally when the financial complex lags. The same can be said for the semiconductor sector as well. Recently financials, XLF, and the semiconductor, SMH, sectors have worked considerably higher on relatively light volume. Both XLF and SMH are trading into major resistance and both are starting to show signs that they are nearing a potential top. The Volatility Index is trading up from recent lows ... Finviz VIXM and VIXY … Yahoo Finance VIXM and VIXY … MSN Finance VIXM and VIXY … Google Finance VIXM and VIXY
Earnings releases have been revised lower in the 4th quarter of 2011. In fact almost 3.5 companies have announced earnings revisions to the downside for every company that has indicated a stable to rising earnings announcements. This type of scenario has not been present since the first quarter of 2008 which as we know was not exactly a great time frame to be looking to put cash into risk assets. Furthermore, Goldman Sachs analysts came out with the following commentary, “While the 4th Quarter is typically the strongest quarter for earnings, estimates have fallen 9% since the summer and are now below both realized 2nd and 3rd Quarter results.” Goldman Sachs is also expecting significant price pressure coming from a weak U.S. economy and the fears of a European recession in 2012. Overall, the estimates are far from bullish and are in fact quite concerning when looking at the current valuation of U.S. equities. The impact that a stronger U.S. Dollar, $USD, UUP, will have on domestic companies which are used to having a competitive advantage when looking at earnings due to currency adjustments could produce negative surprises. Typically positive earnings adjustments are likely to be revised to the downside as the U.S. Dollar has rallied sharply higher in light of the weakening Euro currency. The U.S. Dollar Index is consolidating directly beneath resistance which is generally seen as a bullish development. I expect a breakout over new highs is only a matter of time.
5) … Brazil took the lead over Argentina in the January 2011 emerging markets and global Neoliberal credit death rattle rally.
Brazil banks, ITUB, BBD, BFR, BMA, BRAF, mining shares VALE, utilities, EBR ,SBS, CIG, CPL, Wireless Communications, TSU, Brazil Small Caps, BRF, Brazil Pulp Producer, FBR, rose taking Brazil, EWZ, the BRICS, EEB, and the Emerging Markets, EEM, EWX, EMFN, Turkey, TUR, Indonesia, IDX higher.
Argentina banks, GGAL, have risen, taking Argentina, ARGT, higher and India Banks, EPI, IBN, HDB, have risen, taking India, INDY, SCIF, TTM, higher.
Russia, RSX, Poland, EPOL, Russia Small Cap, ERUS, Eastern Europe, CEE, Vietnam, VNM, Egypt, EGPT, Developing Asia, GMF, New Zealand, ENZL, Latin America Small Caps, LATM, Peru, EPU, and Chile, ECH, rose.
Emerging Market Small Caps, EWX, World Small Caps, VSS, Small Cap Pure Value, RZV, RPV, and Small Cap Revenue, RWJ, rose taking World Shares, ACWI, ACWX, VT, EPP, SPY, DIA, QTEC, IWM, DVY, KRE, VTI, PFF, higher. Regional banks BK, STT, NTRS trade lower. Pittsburgh Tribune Review reports BNY Mellon’s profit fell 26 percent; 900 jobs cut, including 100 in Pittsburgh and The Chicago Tribune reports Northern Trust to cut 700 jobs.
The chart of VTI, RZV, RPV, IJS, IJR, IWN, IWD, RWJ, show that the small cap value shares have been outperforming the US Shares in the Dollar Rally includes ALK,SKYW, GPN, GCA, ORLY, FUN, CRMT, HIBB, RCII, RJL, TBI, SHFL, PSEC, DUF, NGPC, SNX. The small cap value shares have been a safe haven rally from Eurozone debt contagion as they are like dividend payers in that they have cash flow, and are very liquid, and being small cap are easy for the traders to run up. These selected stocks are in hot sectors like travel, cash payment, auto parts, gambling, regional airlines, business services, asset management, and retail.
Technology shares SOXX, XSD, SMH, SKYY, IGN, FONE, IGV, led by TSM, NTGR, JBL, AAPL, rose.
Wood, WOOD, manufacturers seen in this Finviz Screener, IP, DEL, WY, LPX, PCL, UFPI, rose, taking the commodity timber, CUT, higher. Gary of Between The Hedges reports Lumber has declined -11.0% since Dec. 29th and is at the lower end of its recent range, near a multi-year low, despite better US economic data, improving sentiment towards homebuilders, stock rally and decline in eurozone debt angst.
A number of North American Design, Construct and Build Companies, seen in this Finviz Screener, rose, continuing their Dollar Rally, CX, URS, NX, USG, NCS, TRN, MTW, GLDD, SXI, CLNE, AEGN, DY, PRIM, BECN, GVA, CAT.
Retailers, CVS, PETM, BKE, ORLY, TJX, HIBB, BEBE, HD, LOW, led Retail, XRT, higher.
Industrial Office REITS, FNIO, led Real Estate, IYR, higher.
Small Cap Industrial, PSCI, traded higher on a rising price of HEES, WTS, BRC, ROLL, and DCI.
Small tool manufacturers, LECO, SNA, SSD, SWK, rose.
Synthetic manufacturer, MTX, and chemical manufactures DD, ALB, ASH, CYT, RPM, rose.
Business Services, WXS, and TBI, rose.
Home builder, ITB, rose strongly, taking HD and LOW higher.
Copper, COPX, led by SCCO, Aluminum, ALUM, led by AA, Uranium, URA, Coal, KOL, Rare Earths, REMX, taking, S&P Materials, MXI higher. Biotechnology, XBI, led by AMGN, and MON, rose.
Global Financials, IXG, led by Swiss Banks, UBS, CS, and Bank of America, BAC, rose.
Growth shares, Steel, SLX, and Metal Manufacturing, XME, NUE, STLD, RS, rose. These, and solar, TAN, which rose strongly today, will soon be falling quickly lower.
Cement Manufacturer, CX, rose strongly taking Mexico, EWW, higher. US Cement Manufacturer, EXP, also rose strongly. The rise in the Mexico Peso, FXM, today was largely attributed to the rise in these cement shares.
Debt laden IP and MTW rose.
Special Eatery and Dollar Stock Rally leader, SBUX, rose, continuing its strong ascending wedge rally
Money firms GPN, and GCA, led small cap revenue RWJ higher.
A number of automobile parts manufacturers, TRW, JCI, DAN, TEN, MGA, TWI, SMP, WBC, WPRT, PCAR, CVGI, ALV, GPC, BWA, MOD, led Ford, F, General Motors, GM, and Autos, VROM, higher.
Automobile dealers KMX, SAH, ABG, LAD, GPI, rose. Automobile parts, AAP, AZO, ORLY, GPI, rose.
Shipping stocks, SEA, ESEA, NAT, CPLP, DCIX, rose strongly. This as Zero Hedge reports Baltic dry index slumps to lowest since January 2009.
Global Agriculture, PAGG, and US Agriculture, MOO, rose, taking AGCO, LNN, DE, TSCO, NC, CASC.
Transportation, IYT, Manufacturing, IYJ, Consumer Services, IYC, RRR, URI, Biotechnology, IBB, Telecom, IYZ, all rose.
Deutsche Bank, DB, rose taking European Financials, EUFN, Europe, VGK, Germany, EWG, Italy, EWI, Spain, EWP, higher.
China Financials, CHIX, and China Materials, CHIM, rose taking China, YAO, and China Small Caps, HAO, higher. However, the Shanghai shares, CAF, traded lower. Gary of Between The Hedges reports Shanghai Copper Inventories are up over 300.0% ytd to the highest level since March of last year. Moreover, China’s ChiNext Index (China’s Nasdaq) plunged another -5.7%(at lowest since inception in June 2010). This index is down -32.1% since Nov. 15 and down -14.3% ytd,
Japanese Banks KB, NMR, took Japan, EWJ, and Japan Small Caps, JSC, higher.
Australian Bank Westpac, WBK , took Australia, EWA, higher.
Korean Banks, SHG, WY, took, South Korea, EWY, higher.
The chart of King of Dividends, PHI, shows what may turn out to be an evening star candlestick.
National Bank of Greece, NBG, popped higher to resistance.
Education Shares, seen in this Finviz Screener, APOL, DV, ESI, BPI, STRA, LOPE, plummeted.
Today was a case of stocks, VT, taking world major currencies, DBV, and emerging market currencies, CEW, higher. The flight to safety curve in small cap value shares, RZV:RZG, was drawn up by the world currencies FXA, FXE, FXM, FXC, ICN, FXS, SZR, FXF, BZF, FXRU, that is by Brazilian Real, BZF, Russian Ruble, FXRU, Indian Rupe, ICN, Mexico Peso, FXM, Swiss Franc, FXF, Swedish Krona, FXS, Euro, FXE, British Pound, FXB, Australian Dollar, FXA, and a Canadian Dollar, FXC. The rise in currencies today forced the US Dollar, $USD, UUP, lower.
Tin, JJT, and Copper, JJC, led base metals, DBB, higher. Commodities, DBC, and US Commodities, USCI, rose a tad higher. Financial Times reports Oil Demand Falls for First Time Since 2009. Oil demand has fallen for the first time since the 2008-09 global financial crisis, a result of the weakening economy, a mild winter and high crude prices, according to new estimates from the International Energy Agency (Hat Tip to Gary of Between The Hedges)
Debt leverage is no longer possible as currencies are falling in value. The leverage of debt is near an end. Junk Bonds, JNK, and Leveraged Buyouts, PSP, rose on today’s rise in the risk trade. Municipal Bonds, MUB, California Municipal Bond, CMF, Build America Bond, BAB, Michigan Municipal Bonds, MIW, Short to Medium Duration Corporate Bonds, LQD, Long Duration Corporate Bonds, BLV, appear to be topping out. Total Bonds, BND, appears to be peaking out. The world is passing through peak credit. World government bonds, BWX, has turned lower on rising sovereign default globally. The global government debt bubble, that is the sovereign credit bubble, has burst. Emerging Market Bonds, EMB, rose today on rising emerging market currencies, CEW, but these have also turned lower. International corporate bonds, PICB, rose today, but these have also turned lower on the death of fiat money.
The US sovereign debt yield curve is steepening. The Steepner ETF, STPP, rose and the Flattner ETF, FLAT, traded lower, as the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, steepened signaling a recession is on the way. The rise in stocks today finally dislodged US Treasuries, TLT, EDV, ZROZ, from their status of being a totally safe haven investment.
Gold, GLD, being both a commodity and a currency, rose. In the age of sovereign default, it and diktat are the sole forms of soveign wealth.
The global credit bubble that has been growing under Milton Friedman’s Free To Choose floating currency regime for the last forty years is about to burst.
The January 2011 rally is Neoliberalism’s death rattle rally. Excessive bank credit and municipal debt caused the 1929 through 1932 collapse. Today it is excessive Neoliberal finance, carry trade lending, securitization of corporate and sovereign credit, that will cause yet another global collapse, and out of this will come the ten toed kingdom of regional global governance with diktat as a currency.
6) … Do hedge funds have human rights?
Landon Thomas writes Hedge Funds May Sue Greece if It Tries to Force Loss. The European Court of Human Rights may have to determine if capital rights are human rights. And Mike Mish Shedlock relates vulture capitalists fight Greek nation for spoils of debt. Greek Bond Talks Edge Toward 68% Haircut Deal; Will the Deal Be Accepted?
7) … In today’s news
Yves Smith of Naked Capitalism post the Wold Richter article Greece – Disagreement Everywhere, Rift In The Troika.
Athens News reports “The three Troika inspectors, oul Thomsen from the IMF, Mathias Morse from the EU, and Klaus Mazouch from the ECB, are supposed to head to Greece next week to inspect its books; the budget deficit is once again higher than the revised limit that Greece had vowed to abide by. And they’re supposed to negotiate additional ‘structural reforms.’ But there probably won’t be three inspectors, according to senior IMF sources. Missing: Poul Thomsen. The IMF has had enough.
Handelsblatt reports “Already, according to more leaks, IMF Managing Director Christine Lagarde had warned German Chancellor Angela Merkel and French President Nicolas Sarkozy that the fiscal
and economic situation in Greece had deteriorated. Hence, the ‘voluntary’ haircut on Greek
bonds held by private sector investors should be increased to more than 50% to maintain the goal
of bringing Greece’s debt load down to 120% of GDP. And the second €130 billion bailout
package, agreed upon on October 26, should be enlarged by ‘tens of billions of euros.’
Manager Magazine Germany reports “The German reaction was immediate. ‘There has to be a line somewhere,’ said Michael Fuchs, deputy leader of Merkel’s party, the CDU. ‘This cannot be a bottomless barrel.’ Even if Merkel were amenable to committing more taxpayer money to bail out Greece, she’d face a wall of opposition in her own party. And he wasn’t brimming with optimism: ‘I don’t think that Greece, in its current condition, can be saved,’ he said.”
Bullion Vault relates Current price a chance to buy gold
The Guardian reports China's skyscraper craze may herald economic crash
HamptonRoads reports Home sales rise in December as prices slide
TestosteronePit reports the susceptibility of Germany’s export driven economy to deflationary economic trends Germany’s Export Debacle. Germany’s export economy is an export growth trade that operates off of currency carry trades, such as the Yen and Swiss France carry trades, debt carry trades, such as the fall in Eurozone sovereign interest rates with the introduction of the Euro, and US Federal Reserve credit stimulus, such as its ZIRP, QE1, and QE2.
Reuters reports US Natural Gas Prices at 10-Year Low as Warm Weather Weakens Demand
Economic contraction is underway. Reuters reports World Bank Slashes Global GDP Forecasts, Outlook Grim. And Annie Lowrey of NYT reports World Bank Warns Developing Nations Of Slowing Growth. In the report, the biannual Global Economic Prospects, the bank predicted that high-income countries, including the United States, France, Japan and Germany, would grow 1.4 percent in 2012. It forecast a mild contraction of 0.3 percent in the 17 countries that use the euro. Developing countries will grow 5.4 percent, down from a forecast of 6.2 percent in June, the bank said.
The reason for the global slowdown is twofold, said Andrew Burns, head of global macroeconomics at the World Bank and the main author of the report. First, developing countries like Turkey, India, Russia and Brazil were “overheating” in the rebound after the recession and have tightened monetary policy to help curb inflation, he said. Second, he added, the euro zone crisis has frightened investors, and austerity budgets adopted in countries, including Italy and Greece, have weighed on growth.
Mr. Burns said those trends created a “dangerous dynamic,” with the slowdown in emerging economies sapping growth from advanced economies, and the downturn in advanced economies worsening prospects for emerging markets. “The events are feeding off of one another,” he said.
Last summer, the World Bank noted significant “contagion from Europe to developing countries,” Mr. Burns said. Risk-averse investors slashed financing to emerging markets, with gross capital flows falling to $170 billion in the second half of 2011 from about $309 billion in the same period in 2010. In addition, borrowing costs began to rise in developing countries. The bank said developing economies should prepare for declining investment from abroad, less-robust exports, and reduced remittances.
The bank also warned of the continued threat of a global financial shock “similar in magnitude to the Lehman crisis,” because of the possibility that a major European economy could be shut out of the global debt markets. In that case, the bank estimated the damage to the world’s economic growth would rival the recession of 2008 and 2009. “The largest economy in the world is weakening,” Justin Yifu Lin, the bank’s chief economist, said in an interview, referring to the European Union. “The message for developing countries is to start preparing now.”
Mr. Lin said advanced economies should consider more immediate fiscal stimulus to support growth, locally and globally. “They need to carry out structural reforms in the long-term,” he said. “But in the short term, they need an intervention to provide a short-term boost to demand.”
He warned that emerging markets have less room for fiscal and monetary stimulus than they did in 2008 and 2009, even though they have more capacity than many developed countries. Many high-income countries, including the United States, are already struggling with heavy debt loads, limiting the possibility of fiscal stimulus.
Bloomberg reports Spain is providing emergency credit line to regions settle their outstanding bills and payments to suppliers and the central administration so as to prevent default by the Valencia regional government and others.
Bild reports European Parliament Martin Schulz is going to be proactive for the sovereignty of the EP, as power in the EU and the eurozone has been taken away from democratically elected European institutions by Angela Merkel and Nicolas Sarkozy. “We have not been able to sufficiently make our influence visible“, He said. “I believe the people want someone who fights for their interests. For that reason I will be more confrontational in the future and I will pick a fight with the European Commission or the head of government with individual member states, if necessary. I will not hide away.” He added.
A stronger US Dollar, falling world currencies and emerging market currencies, as well as a rise in the M2 Money supply has boosted US factory output. Bloomberg reports Factory Production in U.S. Climbed by Most in a Year Last Month. Factories in the U.S. churned out more computers, cars and construction material in December as manufacturing remained at the center of the expansion. Output (IPMGCHNG) climbed 0.9 percent last month, the biggest gain since December 2010, according to Federal Reserve data issued today in Washington. And MarketWatch reports Home-builder Gauge Hits 4.5-year High. A measure of builder confidence in the market for newly built single-family homes rose in January to the highest point since June 2007, according to a closely-followed index released Wednesday. The National Association of Home Builders/Wells Fargo housing market index rose 4 points to 25, the fourth consecutive rise. Economists polled by MarketWatch had expected only a 1-point improvement to 22. Every region rose, including a 9-point surge in the Northeast and a 5-point advance in the West, and each component, current sales conditions, sales expectations in the next six months and traffic of prospective buyers, rose 3 points.
Ambrose Evans Pritchard reports The Euro Is Pushing Italy Into A Depression. (Hat Tip to Gary of Between The Hedges)
James Hurley of The Telegraph reports Euro Crisis Puts UK Companies In Vicious Cycle
The Eurozone debt crisis is creating a “vicious cycle” of delayed payment among UK companies, an analysis of foreign exchange payments reveals. (Hat Tip to Gary of Between The Hedges)
The Telegraph reports Hungary Faces Ruin as EU Loses Patience. The European Commission has launched legal action against Hungary's Fidesz government for violations of European Union treaty law and erosion of democracy, marking a dramatic escalation in the war of words with the EU's enfant terrible. (Hat Tip To Gary of Between The Hedges)
Dr. Housing Bubble relates the Vancouver Housing Bubble Is Topping Out
Melinda Burns writes in Miller McCune How Foreclosures Feasted on Some Cities, Not Others And presents the case of Lake Elsinore, CA 92503, and Hesperia, CA, 92340 where pro residential growth policies favoring flipping, without an underlying economic base, and predatory lending to minorities, fostered high rates of foreclosure.
The Automatic Earth covers the extensive UK debt and shrinking economy Quo Vadis,Britannia? The only core issue in the UK is its outsize financial sector with its outsize debt. From time to time, however, news articles pop up that seem to indicate there's more going on than trouble in the City of London.
A Global Eurasia War is coming. Business Insider reports Russia Is Preparing For A Possible US-Israeli Attack On Iran. and Greg Hunter of USA Watchdog reports Iran War Is Only A Matter Of Time.
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