Financial Market Report for Wednesday February 15, 2012
1) … Traders continued taking India Infrastructures stocks higher …. as Railroads, Steel, and Small Cap Pure Value Shares traded lower … Dow Theory suggests that the Great Deleveraging likely commenced today.
Volatility TVIX,VIXY,VIXM, rose, as is seen in this combined chart.
Traders took INXX, INDY, INP, SCIN, TTM, EPI, HDB, IBN, SCIN, INXX, INFY, TCL, PTI, SLT, higher, which continued to drive Emerging Market Small Caps, EWX, higher.
This as Railroad Shares, ARII, TRN, KSU, GBX, traded lower, likely heralding a soon end to the US Infrastructure, PKB, rally.
Small Cap Pure Value, RZV, another recent safe haven and ECB LTRO neo liberal credit rally leader, traded lower.
Dow Theory holds that Industrials, IYJ, and Transports, IYT, make market turns together. In as much as these both traded lower today, the Great Deleveraging, likely commenced. The chart of Transportation,IYT, shows a rounded top, and a fall lower out of an ascending triangle, suggesting that transportation stocks are headed irretrievably lower.
Confirmation of the start of the Great Deleveraging comes from Steel, SLX, and Metal Manufacturing, XME, trading lower, on a likely exhaustion of growth, that comes from the failure of the global debt trade, which is seen in World Government Bonds, BWX, having turned lower, and from the exhaustion of neo liberal finance and fears of Greece Default.
The fiat wealth system known as Neoliberalism, that has governed the world for the last forty years is now passing away. The diktat system known as Neoauthoritarianism, is rising in its place.
Bespoke Investment Group reports Breadth Weakens While it may seem as if the market has been doing well lately, it really hasn't done anything over the past ten trading days. Since February 3rd (a Friday), the S&P 500 is flat, and the Dow is actually down about 100 points. While Apple, with its huge weighting in the S&P 500 and Nasdaq, has really helped buoy the market over this time period, underlying breadth has weakened, and the VIX fear index has shot up 25%. As shown below, 78% of the stocks in the S&P 500 are currently trading above their 50-day moving averages, down from a reading in the mid-80s earlier this month. Apple can't go straight up forever, and if it does pull back or trade sideways for awhile, it will be interesting to see if the rest of the market picks up the slack or completely falls apart.
Greece Shares, GREK, and the National Bank of Grace, NBG, traded lower as the WSJ reported Greek bailout talks entered a new round of brinkmanship on Tuesday, as euro-zone finance ministers delayed a meeting to approve a new bailout and debt restructuring for Athens, which worked to assure them it is committed to new austerity measures as a debt-redemption deadline looms. The ministers put off the talks in Brussels, which they had scheduled for Wednesday, and replaced them with a teleconference, saying Greek political leaders haven't given clear pledges on the implementation of fresh austerity measures.
And Bespoke Investment Group reports Euro Spreads Back on the Rise. Two days ago, we highlighted the fact that sovereign debt spreads in Europe relative to Germany were well off their highs and for many countries were actually making lower lows. Since then, Moody's lowered its ratings on six countries and the outcome of the Greek bailout process has been thrown into doubt. As a result of these events, spreads for most EU countries have been back on the rise, although we would stress that they are nowhere near their recent highs. In Italy, spreads have risen by nearly 20 bps to 386 bps, while spreads in France have risen by 17 bps to 114 bps. Spain has seen its spreads rise 25 bps to 355 bps. Finally, while the increase in spreads in Greece is hardly visible on the chart, that is only because spreads are already so high in Greek debt. The reality is that Greek spreads have widened by more than any of the four countries shown at 35 bps.
2) … What If? …. What If Banks Are Regionalized?
What if? .... What if Angela Merkel has not been blatantly lying about wanting to keep Greece in the EU, as some suggest? What if she has heard and heeded the 1974 Clarion Call of the Club of Rome for regional global governance to provide order out of chaos as inflationism turns to destructionism?
What if? .... What if fate is effecting a bloodless Euro zone political, economic, and investment coup de etat, where the EU ECB and IMF Troika, together with the banks, become the new sovereign authority replacing former sovereign nation states.
Zero Hedge presents a video of silk-tie-and-suited MEP Nigel Farage bombarding his peers with the Red Pill …. "If they don't get the Drachma back, you will be responsible for something truly truly horrible!".
Yes horrible indeed, something horrible is coming: the beast regime is rising to replace the banker regime. Neoauthoritarianism is rising to destroy all economic and political life.
Is Angela Merkel not sovereign over the Euro zone? Is not, fate is passing the baton of sovereignty from nation states to sovereign leaders in Brussels and Berlin? Libertarian hopes for Freedom, Free Enterprise, and a Free Monetary System, are simply mirages on the Neoauthoritarian Desert of the Real. Austrian economic writers are wearing anarcho capitalist spectacles.
I suggest that they consider the Morpheus Proposal and take the Red Pill, as in the movie The Matrix, where Morpheus relates "You take the blue pill. The story ends. You wake up in your bed and believe … whatever you want to believe. "You take the red pill. You stay in Wonderland and I show you how deep the rabbit hole goes. "Remember. All I'm offering is the truth. Nothing more."
The debt economy of capitalism is coming to an end, with the result that the dynamos of growth and profit are failing. The driver of investment reality is that the European Central Bank's long-term refinancing operations has provided cheap three-year liquidity to banks, which has fueled fiat asset purchases across the board including Italy and Spain Sovereign Debt. The ECB LTRO ponzi credit facility cannot extend to the emerging markets, EEM, and the emering market financials, EMFN, and the emerging market mining shares, EMMT, and to US regional banks, KRE, and US community banks, QABA, US Infrastructure, PKB, Small Cap Pure Value, RZV shares. Yes, the scope of neo liberal finance is limited, as is likely to been seen in the chart of ITLY, EMFN, EMMT, KRE, QABA, PKB, RZV, where ITLY will likely be sustained by the ECB's LTRO 1 and LTRO 2, yet, the rally in the former safe haven stocks fizzles. The reach of ECB credit liquidity cannot continue to extend to S&P Materials, MXI, and S&P Global Financials, IXG, as is seen in the chart of SPY, MXI, IXG.
Soon out of creative destruction, regional global governance will establish a totalitarian collective in the Eurozone, and regional public private partnerships to manage the rest of the world's ten regions. This ten toed kingdom of regional global governance, also known as the beast regime of Neoauthoritarianism will provide diktat to replace Milton Friedman's Free To Choose script, that powered Neoliberalism's global finance and trade for the last forty years.
Political capital will soon command economic transactions, as the dynamos of regional security and stability gain traction, providing order out of chaos. Investment capital that fueled growth and profit will literally be washed away into the pit of financial abandon as regionalization replaces capitalism.
Banks will soon be nationalized, better said regionalized, and integrated into the government, and become known as the government bank, or gov banks for short.
In Europe, leaders will meet in summits and waive national sovereignty, and announce that the European Financial Institutions, such as Ireland's IRE, will be integrated into the Bundesbank or the ECB, which will become known as the Euro's bank.
In Europe, regional monetary cardinals, under the supervision of a monetary pope, will work in private public partnerships for regional security and stability, as they oversee the region's resources and economic production. The FT reports that François Hollande, the Socialist candidate for the upcoming French presidential elections, has questioned whether the new European fiscal treaty on budgetary discipline goes far enough in guaranteeing stronger economic governance in the eurozone, adding, "Some have proposed the idea of a minister of finance for the eurozone who reports to the European parliament, that is a potential solution." And, German industry executives are expressing increasing lack of confidence in the euro project. Open Europe relates that In an interview with economic monthly Manager Magazin, Franz Fehrenbach, the head of Bosch - one of Germany's largest corporations - argued that Greece was an "unbearable burden", and that "with its phantom retirees and wealthy tax evaders, this country has no place in the EU". He said that Greece ought to voluntarily leave both the eurozone and the EU, but that if it refused, it ought to be forced out through a change in EU law. Süddeutsche notes that his intervention is significant because of both the size of his company and the fact that German Chancellor Angela Merkel has sought out his advice in the past. Meanwhile, a survey of 300 German executives found that 57% believed it would be better for Greece to re-adopt the Drachma. Manager Magazin Süddeutsche Bild
And in Europe, budget commissioners will work in technocratic government implementing austerity measures and structural reforms.
Will the EFSF be a Special Purpose Investment Vehicle, SPV, that is a silo, to house Greek debt? Open Europe reports that in an interview with Handelsblatt, Bundesbank President Jens Weidmann said that, while he would have no problem with the eurozone's temporary bailout fund, the EFSF, purchasing eurozone government bonds from the ECB and national central banks in order to ease pressure on them, he is against central bank participation in Greek debt write-downs, arguing, "The crucial point is that we are not allowed to waive claims against a state. That would be a form of monetary financing of a government." Weidmann also noted that eurozone governments are wary of the plans to let the EFSF buy Greek bonds from central banks. Les Echos reports that Belgian Central Bank Governor Luc Coene has confirmed that the ECB will redistribute any profits made on Greek bonds among eurozone countries, which will then decide whether to return the money to Greece as part of the second Greek bailout. Handelsblatt Handelsblatt 2 Handelsblatt 3
It is unlikely that holders of Greek debt will take losses, and as a result that the Euro Working Group will likely be faced with a Greek default. An inquiring mind asks, just who will provide monetary financing of Greek government after default? As it stands now bailout talks have been cancelled as the Greek government has failed to produce the required documents. Might EU ECB IMF diktat be used to finance government of the Greek people? Andrew Lilico of Europe Economics writes in The Telegraph "Despite the vote yesterday, the Greeks probably won't ever see a single cent of that second bailout. In particular, the Slovakians, Finns, Austrians and Dutch would never have agreed to the [second bailout] if they had thought there was any chance of them actually having to pay."
A Eurozone guarantee will backup national bank deposit insurance schemes, to reduce retail bank runs. And in Japan, a national bank deposit scheme will act as capitol controls on retail bank accounts.
Soon a rising US Dollar, $USD, UUP, and competitive currency devaluation, as is seen in the chart of UUP, FXE, FXM, FXC, ICN, FXB, SZR, BZF, FXA, FXRU, CEW, will turn world stocks, ACWX, VSS, EWX, lower.
3) … Greece is no longer a sovereign nation state.
Greece is no longer a sovereign nation state; it is no longer a republic. Greece is a client state of the EU ECB IMF Troika, and has a technocratic government which has come via a coup d etat, and which is promising to institute structural reforms and austerity measures. Obviously it cannot be helped by any Neoliberalism nation building initiatives. Given the severity and scope of the recent rioting, its entirely likely that a total breakdown of law and order is imminent and that a civil war like that in Egypt or Lybia is imminent.
Bloomberg reports Europe Demands More Greek Budget Controls in Struggle to Forge Rescue Plan. Europe's creditor countries struggled to bridge divisions over a rescue of Greece, seeking more control over how future aid is spent as the clock ticked toward a possible default next month. In a replay of the brinkmanship that marked the early stages of the Greek crisis two years ago, euro-area finance ministers extracted concessions from political leaders in Athens intended to pave the way for the endorsement of a 130 billion- euro ($171 billion) aid package next week. While "further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of program implementation," Europe is set to make "all the necessary decisions" on Feb. 20, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement after chairing a conference call of finance chiefs late yesterday. Greece's plea for more aid on top of the 110 billion euros awarded in 2010 has stirred recriminations on both sides of Europe's north-south economic divide, with taxpayers in better- off countries rebelling against further handouts. Each day lost brings Greece closer to a March 20 bond redemption when it must make a 14.5 billion-euro payment or become the first country in the euro's 13-year history to default. (Hat Tip to Between The Hedges)
4) … In today's news and commentary
John Redwood MP asks Who should pay for the Greek military? Greece has around one sixth the population of the UK, yet is has about the same number of military personnel on the payroll. The Greek military comprises around 170,000 active personnel paid by the state, with a further 280,000 in the reserve forces. Maybe instead of heaping ever more misery on the Greek private sector in an effort to pay for the very high Greek public spending the government should take a look at this cost. The Greek navy has around 80 warships. The army has more than 1200 tanks. The air-force has around 1000 planes and helicopters. (these are figures taken from public websites). The question is, who should pay for all this? If Greece had armed forces proportionate to her size of country she would have far fewer military personnel and military vehicles, ships and planes. She would save a lot of money , bringing her budget deficit under better control. Greece argues that she needs this large military as she does not trust her neighbours. The west could offer her security guarantees - indeed they already do in effect. I do not believe the west would stand by and watch any invasion of Greece, nor do I think one is any more likely than it has proved in the last few decades. She probably argues that with recession now would not be a good time to sack a lot of soldiers. Greece believes that the EU and the IMF should pay for her military for a bit. She also believes her creditors should pay permanently for her past maintenance of these large forces, by writing off great chunks of her debts.
Open Europe relates that the Wall Street Journal reports the European Commission announced yesterday that twelve EU states, including Italy, Spain, the UK and France, are suffering from significant economic imbalances that leave them vulnerable to further economic shocks, and as a result they would be placed under "stringent observation" so that they do not compromise the stability of the EU. WSJ FTD
Open Europe reports on the pork and patronage that characterizes Greek Socialism. On his Coulisses de Bruxelles blog, French journalist Jean Quatremer reports that, ahead of Sunday's vote on the latest austerity package, Greece's former Prime Minister George Papandreou told Greek MPs, "Our political system is collectively responsible for all the civil servants that we have recruited by favouritism, for the privileges that we have accorded by law, for the scandalous demands that we have satisfied, for the trade unions and business people that we have favoured and for the thieves that we haven't sent to prison." Liberation: Coulisses de Bruxelles