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Euro Trades Lower Again As European Leaders Bicker About European Governance Ahead Of Summit

Financial market report for February 4, 2011

1) … Introduction
Investments, societies and people are subject to economic and political waves, like those found in the sea.

American Banking And Marketing News relates that CME Group Inc, CME, offers access to all asset classes for futures products from a single electronic trading platform, and on trading floors in Chicago and New York City. The Company offers markets in futures and options on futures contracts based on the United States interest rate yield curve, equity indexes, foreign exchange, agricultural commodities, energy, metals and alternative investment products products. Its products are traded through the CME Globex electronic trading platform, its open outcry auction markets in Chicago and New York City or through privately negotiated transactions that the Company clears. It serves the risk management and investment needs of customers around the globe. As of December 31, 2009, the Company had approximately 140 clearing firms. In April 2009, the Company acquired the Carvill Hurricane Index from Carvill America Inc. and renamed it the CME Hurricane Index.

CME Group Inc, CME, traded down 4.5% yesterday Thursday February 3, 2011. The stock has a 52 week low of $234.50 and a 52 week high. The company has a market cap of $20.103 billion and a price-to-earnings ratio of 20.

The wave structure seen in CME’s chart below shows a run up in value that came with the EFSF and US Dollar Rally, where the Elliot Wave 3 Up came in at on December 14 at 323.25. The Elliott Wave 3 Up is the one that creates most of the wealth on the way up; its arrival gives signal to sell and take profits; and it signals a market top in that investment is coming soon.  CME’s top came on January 21, 2010 at 309.87.        CME entered an Elliott Wave 3 Down on January 18, 2010, and ten an Elliott Wave 3 of 3 down on February 2, 2010. The Elliott Wave 3 of 3 Down is the most destructive of all economic waves; it for all practical purposes wipes out all of the wealth accumulated in the investment’s rise to a Wave 5 high. The astute trader is able to sell these events short to great profit. Personally I do not trade as I am invested in gold, with money removed from the stock markets, as I am not concerned about the return on my investment rather the return of my investment. It is evident to me that in the event of a sudden downturn, that investors will not have access to their money at investment brokerages.

Where as the wave structure of CME Group, shows completion, and turn down, the wave structure of Dow Chemical,
DOW, is just now completing with a wave 5 up.

2) The Milton Friedman floating currency regime has provided an Age of Leverage, enabling investors to profit from rising and falling waves of central bank and carry trade liquidity
The neoliberal Milton Friedman, Free To Choose, floating currency regime has provided the framework for one to profit, from money being carried up and down vigorously, by waves of central bank momentary policy, as well as by Yen based and Swiss Frank carry trade lending.

Yesterday, the bond vigilantes in response to Ben Bernanke’s statement of ongoing printing of money to buy US Government Debt, called the 10-year Treasury Yield, $TNX, above 4% for the second day in a row, heightening inflation fears and threatening to upset the nascent signs of an economic recovery.

It was a slaughter house in the bond market yesterday with bonds of all types getting butchered: Aggregate Bonds, AGG, -0.4%, Lehman Aggregate Bonds, LAG, -0.3%; Corporate Bonds, LQD, -0.2%; Corporate Long Term Bonds, BLV, -0.4%; US Government 30 Year Bonds, EDV, -1.1%; and the US Government 10 Year Note, TLT, -0.8%.

And today, there was even more deleveraging out of US Treasury bonds, as the ETN FLAT continued lower.

Presented below is the inverse of the 10 30 yield curve. The 30 10 Leverage Curve, $TYX:$TNX, reflects the leveraging that formerly came with money good US Federal Reserve seigniorage, that increased or perhaps better said inflated the value of the longer maturity US Government Bonds, EDV, over the mid maturity Government Bonds, TLT.  The 30 10 Leverage curve flattened more today as risk aversion grew to the 30 Year US Government Bonds. The Leverage Curve over the years, up until the first and second announcement of QE 2, awarded investors going out long. But with the printing of money by the US Central bank to buy debt, disinvestment in all US Treasuries is occurring, as the risk of principal loss is increasing.

The United States is loosing its seigniorage to the bond vigilantes. A seigniorage crisis is brewing, as the bond vigilantes are growing in capability to short sell US Government Bonds and Notes. The 30 Year US Government Bonds,
EDV, and the 10 Year US Government Bonds, TLT, are loosing their moneyness. The Bond Vigilantes are becoming Sovereign globally, as they call interest rates higher on all sovereign and corporate debt, as is seen in World Government Bonds, BWX, and International Corporate Bonds, PICB falling lower.        

I detail today’s slaughter in bonds as follows:
Aggregate Bonds, AGG, -0.33%; Lehman Aggregate Bonds, LAG, -0.24%; Corporate Bonds, LQD, -0.30% ; Corporate Long Term Bonds, BLV ,-0.59% ; 1-5 Year TIPS, STPZ, -0.19% ; 15 Year TIPS, LTPZ, -0.88%; US Government 30 Year Bonds, EDV, -1.97%; and the US Government 10 Year Note, TLT, -1.00%.

Annaly Capital Management, NLY, has been a leader in successful in financializing and securitizing investment Intermediate US Government bond funds, like Goldman Sachs US Mortgages, GSUAX. Now both have turned lower in value.

Robert Wenzel of EconomicPolicy Journal relates: “Although Fed Chairman Bernanke and economists like Paul Krugman continue to argue: A. that there is no price inflation or B. that the price inflation is limited to commodities and demand caused by BRIC countries, in truth, it is their failure, as Keynesians, to understand the importance of money flows, that causes their failure in understanding the huge price inflation at the capital goods level. The Fed money printing first enters the economy and generally flows to the capital goods sector, e.g. the stock market. Pure and simple, price inflation is roaring in the stock market. This is causing more and more investors to borrow to participate in the market. Margin stock borrowing continues to climb.”

Mr. Wenzel continues: “Further, other ancillary factors, from the reluctance of China to aggressively buy U.S. Treasury debt to the ever expanding Federal deficit, add to upward pressure on rates. The fall in the desire to hold cash balances also plays a role. During the height of financial/economic crisis many sought the supposed safety of Treasury securities for their funds. This drove down rates. Now, that the this desire to hold rates thaws, as the Bernanke manipulated recovery intensifies, many are moving their funds away from the perceived safety of Treasury securities, thus, resulting in further supply on the market, which translates in even higher rates. I see nothing in the near future that will change this. In fact, I expect the rate climb to intensify.”

And EconomicPolicy Journal provides the chart of the breakout of Interest Rates since QE 2. The chart documents that the bond traders have seized control of US Government Debt Interest Rates across the board as the Federal Reserves policies constitute monetization of debt. Robert Wenzel correctly said: “This is what I wrote for the EPJ Daily Alert on early November, 2010, just before the elections: If the Fed opens monetary spigots after mid-term elections, as expected, this should be highly inflationary for all assets, including: the stock market, gold other commodities (both soft and hard) At some point, interest rates break much higher because of inflation. This is the time to borrow and lock in rates for as long as possible. It is NOT the time to hold long-term bonds.”

Falling US Government Bonds,
EDV, and TLT, have not only turned Bonds, BND, lower, but have turned the US Dollar, $USD, lower since QE 2 was announced.  In a similar way, falling Emerging Market Bonds, EMB, and falling Emerging Market Financials, EMFN, have turned emerging market currencies, CEW, lower, which has had the effect of turning Emerging Market Small Cap Stocks Stocks, EWX, and Emerging Market Stocks, EEM, lower.

When one looks at the chart of Emerging Market Bonds, EMB, and looks at the 30 10 US Sovereign Debt Leverage Curve, $TYX:$TNX, one can see that the Emerging Market Bonds were destabilized much like the Gold Mining Stocks, GDX, and the 30 Year US Government Bonds, EDV, were destabilized as investors derisked from US sovereign debt.  Of note, the gold mining stocks rallied this week, how much longer they will rally with gold, as other stocks turn down is any one's guess.

World Government Bonds, BWX, turned parabolically lower with the announcement of QE2, and they turned parabolically lower again this week as Ben Bernanke came forth with his rare announcement that he fully intends to continue purchasing US Treasuries. The formal announcement in November 2010, turned World Government Bonds lower from an Elliott Wave 5 High. And this week’s announcement of intention to continue purchasing US debt, turned World Government Bonds lower from an Elliott Wave 2 High, and into an Elliott Wave 3 Down.

Its hasta la vista baby to sovereign debt. The World Central Bank Leaders, and Government Finance Ministers have lost their monetary seigniorage, that is their debt sovereignty to the bond vigilantes. There will come a day when, out of the soon coming financial chaos, that a World Chancellor, a Sovereign, and a World Banker, a Seignior, will rise to power and provide credit and moneyness, but at a cost, that being the loss of national sovereignty. The word, will, and way of the Sovereign and the Seignior will be sovereign globally. Austerity will be required of all. Eventually, there will be a one world currency, that is a global currency, and unified regulation of banking globally as as referred to in the James Politi and Gillian Tett Financial Times article NY Fed Chief In Push For Global Bank Framework,  

Bill Mitchell in Billy Blog writes of Mrs Merkel’s leadership:  “So in that context the call for some unified economic government in Europe is – as it stands – a good one. But of-course the Chancellor does not have the same conception of that idea as I have. For her, the creation of a common economic governance agreement is about imposing order – German order on the member states. It is about control – fiscal rules – and rules about wage costs and pension funding. Such leadership is leading the way and laying the foundation for this rise of the World Chancellor and the World Banker.        

3) … The world is about to pass from the Age of Leverage, characterised by soveign debt seigniorage, credit liquidity, investment, growth, expansion and prosperity …. and into the Age of Deleveraging characterised by sovereign debt crisis, credit tightening, disinvestment, instability, contraction and austerity
The Carry ETN, ICI, turned down with the announcement of QE2: one can no longer profit by borrowing  from the Bank of Japan or Austria or at a Cayman Island Pirate Cove Bank at 0.25% Bank, and using carry trade loans to profitably invest long the markets.

The spigots of financial liquidity are running dry. Risk appetite will quickly be turning to risk avoidance as both the spigot of sovereign debt seigniorage leverage, and the spigot of carry trade lending leverage, no longer provide investment liquidity. The investment cool aid is turning toxic. The global investment bubble is about to burst.  

World Stocks, VT, and World Small Cap Stocks, VSS, are about to turn lower, on falling World Government Bonds, BWX, and falling Global Financials, IXG, as well as falling major world currencies, DBV.  

US Stocks, VTI, and US Small Cap Stocks, IWM, are about to turn lower on a falling 10 Year US Government Note, TLT, and falling US Financials, XLF, as is seen in VTI:TLT and as is seen in VTI:XLF. Those who are short selling the 200% of the Russell 2000, URTY, will profit; please note how the chart of URTY shows it has fallen lower from its recent high, and is cresting up into an Elliott Wave 2 high and about to fall lower in an Elliott Wave 3 Down.
The Morgan Stanley Cyclical Index, $CYC, rose to a rally high of 1091.96 on February 4, 2011.

The chart of the Morgan Stanley Cyclical Index relative to the 30 Year US Government Bond, $CYC:EDV, closed at 14.66 on February 5, 2010. This ratio reflects the ability of the industrial growth stocks to expand or leverage upon sovereign debt. As sovereign debt turns lower, so must the industrial leaders.

Morgan Stanley Cyclical Stocks turning lower include Deere, DE,

Morgan Stanley Cyclical Automotive Component Ford, F, turned lower, which turned the automotive manufacturing supply sector lower; which includes Johnson Controls, JCI.

Morgan Stanley Cyclical Banking Component Citibank, C, resides at the middle of a broadening top pattern.

Morgan Stanley Cyclical Basic Material Component Alcoa, AA, is running hot, on steaming base metal, DBB, prices. But the chart of Base Metal shows many technical factors of a market top, as does the chart of Aluminum, JJU.

The Morgan Stanley Cyclical Index Building Systems Component United Technologies, UTX, is running strong, likely due to its competitor Siemens, SI, having run strong on the EFSF monetary authority rally.

The Morgan Stanley Cyclical Chemical Component, Dupont, DD, has been an out-performer, having risen almost vertically for the last eleven trading days.

The Morgan Stanley Cyclical Index Transportation Component Goodyear Tire, GT, exploded higher, giving boost to the Index today; chart shows what is likely an Evening Star.

Surprising investors took the Morgan Stanley Cyclical Building Supply Component Masco, MAS,  to a new high.   

Investors continued to buy into Morgan Stanley Cyclical Index Industrial Component, Eaton, ETN, taking it to a new high.

The very slight sell in the Euro, FXE, and the sell in commodity currencies, CCX, stimulated Metal Manufacturing, XME, and Steel, SLX, to trade lower; with Gold, GLD, and the Gold Mining Stocks, GDX, and the Silver Mining Stocks, SIL, trading slightly lower as well.

Dow Jones US Energy Service, IEZ, traded lower on today's lower oil, USO, price.

Communication services company, Crown Castle International, CCI, and American Tower, AMT, closed at all time new highs today. In weeks to come, one will look back and ask how in the world could these have risen so high as seen in the Yahoo Finance chart of CCI and AMT. Of course the answer is waves of  US central bank easing as well as carry trade investing from the Cayman Islands, Bank of Japan and Austria. Such was the former age of prosperity.

Gaming, BJK, manifested bearishly as the vice stocks Las Vegas Sand, LVS, and MGM Resorts, MGM, fell lower in Elliott Wave 3 Downs. Not even vice stocks will perform well in the coming age of austerity.

The Swiss Franc Euro Carry Trade,
FXF:FXE, traded lower as the Swiss Frank, FXF, fell more than the Euro, FXE; last year this carry trade was awesomely rewarding to those who had the insight to enter it

4) ... Open Europe in Press Summary relates Disagreements Over Eurozone Governance Mount Ahead Of EU Summit

Ahead of the summit of EU leaders today, disagreements mount over the details of a Franco-German proposal that would see stronger coordination of six areas of fiscal and economic policies in the eurozone, in return for increasing the size and scope of the EU’s bail-out fund, the European Financial Stability Facility. The plan, known as a “pact for competitiveness”, includes a common corporate tax rate across the eurozone as well as curbs on wage increases and a minimum retirement age, reports FAZ. Several papers note that EU leaders are unlikely to agree on anything substantial today, making an agreement on the new eurozone structure in March less likely – a critical date for convincing markets that the eurozone has a credible plan for stability in place.

The German-dominated plan has been met with much scepticism, also from the French, who question the feasibility of wage coordination and want the permanent bail-out fund to be able to buy bonds directly. A French official is quoted by the FT, saying: “Let’s be clear, we’re not in full agreement with our German friends.” Belgian Prime Minister Yves Leterme is quoted by AFP saying he is “absolutely not in agreement” with plans to break the link between wage increases and the level of inflation across the eurozone. “We will not allow our social model to be undone”, he added.   

The French Presidency announced yesterday that France and Germany will propose that eurozone heads of state and government hold an annual meeting “to discuss deepening coordination” in the eurozone, reports AFP.

Meanwhile, it is widely reported that, in spite of increasing inflationary pressures, the European Central Bank decided not to raise eurozone interest rates. The FT notes that the decision triggered a “sell-off in euro”. Bloomberg reports that this week the ECB failed to fully neutralise the liquidity created by its bond purchases for the third time since the program began.

An article in the Economist notes that, despite the significant austerity measures adopted, Greece may still be unable to repay all its debts. The article estimates that, even if some restructuring went ahead, Greece would still at least be left with a debt-to-GDP ratio of 130%. Open Europe’s briefing showing that EU plans for Greek restructuring will only cut Greece ’s total debt by between 2.4% and 4.2% without the involvement from private bondholders is cited by Greek news site Sofokleous10.
Open Europe briefing Open Europe press release FT Irish Times: Scally Irish Times Irish Times 2 Irish Independent EurActiv IHT EUobserver FT: Analysis Irish Times Irish Times: Beesley Irish Independent AFP AFP: Leterme Le Figaro City AM WSJ WSJ: Mattich FT FT 2 IHT Bloomberg The Economist Sofokleous10 El País

5) … Seeing all of this chaos, currency traders rightly sold the Euro,
This is the fourth currency to be sold this year. The first was the Emerging Market Currencies, CEW, on inflation destruction seen in Indonesia, IDX, and Turkey, TUR, and also on China bank and credit tightening. The second currency was the South Africa Rand, SZR, on a falling price of gold, and on Africa, AFK, turmoil. The third currency to be sold this year was the US Dollar, $USD, in advance of Ben Bernanke’s press statement of ongoing purchase of debt. The evidence is clear, cogent, and convincing that the bond vigilantes have teamed up with the FX currency traders to carry out a global currency war of competitive currency devaluations on the World Central Bankers, State Finance Ministers, and Treasury Secretaries, for domination of the worlds peoples and resources.  

European Shares, VGK, traded lower; with Spain, EWP, and Banco Santander, STD, sharply lower.  Even Siemens, SI, located in Germany, EWG, has turned down.

Solar stocks, TAN, and Wind Energy Stocks, FAN, were driven up along with semiconductors, XSD, in the the US Dollar Liquidity Trade and EFSF Rally, that is coming to end. Today solar stocks fell lower. One could actually see this coming. Given the fundamentals of falling currencies, first with the Emerging Market Currencies, CEW, then with the US Dollar, $USD, and today with the Euro, FXE, SunPower Corp, SPWRA, having a PE of 44, manifested as an short selling opportunity. GT Solar International, SOLR, which manifested a lollipop hanging man candlestick yesterday, at the crest of an Elliott Wave 2 up, is now also trading down; it also is a great short selling opportunity. And another is LKD Solar, LDK. In as much as the previous fall in solar stocks was quite vigorous, it is reasonable that short sellers will be quite well rewarded. Bruce Einhorn of Bloomberg Businessweek reports: Last year was a good one for Yingli Green Energy Holding, YGE. The Chinese company makes photovoltaic solar-power modules, which convert sunlight into electricity. With global demand up, Yingli doubled production capacity and ran its factories "365 days a year, 24/7," says Bryan Li, the company's chief financial officer. "We sold everything." Almost all the modules went to Europe, where governments provide generous subsidies for solar-energy producers. Yingli plans to expand production another 70 percent this year, and it isn't alone: Other Chinese solar companies, including Suntech Power Holdings, STP,  and LDK Solar, LDK, plan double-digit production boosts in 2011. "All of the major Chinese producers are engaged in massive, very aggressive capacity-expansion programs," says Paul Leming, an analyst with Soleil Securities in New York. Their timing might be off. As the Chinese ramp up, austerity-minded governments in Europe are scaling down their solar subsidies. Germany plans to reduce its feed-in tariffs, which guarantee above-market rates to solar power producers, as much as 15 percent by July. France, Spain, the Czech Republic, and other European countries are reducing their support as well. "The amount of capacity being added is way ahead of what the market can take," says Finlay Colville, senior analyst with market research firm Solarbuzz.  

S&P Clean Energy, ICLN, traded lower.

Home builders, ITB, traded lower as KBH Homes, KBH, dropped 5.6% and MHO Homes, MHO,  dropped 3.9, rewarding those who were short.

The Middle East Dividend Stocks, GULF, which got a massive amount of Ben Bernanke QE 2 Cool Aid, manifested a massive and flaming bearish candlestick and traded lower today as people rose up in nearby Africa protesting Government Authorities and high Food, FUD, prices.  

Gasoline futures, UGA, which saw lots of speculation in anticipation of the Fed’s Quantitative Easing Policies, traded lower today. Cotton, BAL, traded lower; as did Oil, USO, Brent Oil, BNO, and Heating Oil and Petroleum, DBC.

It is not only exiting of speculation, but also a fall in the Euro, FXE, to 135, that is acting to drive commodities, DJP, lower. Gold, GLD, is both a commodity and a currency; it traded lower. I encourage investment in gold bullion. Leslie Hook and Jack Farchy of Financial Times relates: “China’s gold imports are estimated to have more than doubled from a year ago in the run-up to Chinese new year, putting the country on track to overtake India as the world’s largest consumer of the precious metal.  The growth in demand is being attributed in part to Chinese families giving each other gifts of gold instead of traditional red envelopes filled with cash.  Fears of inflation have also driven demand for gold as a retail investment.  Precious metals traders in London and Hong Kong said… they were stunned by the strength of Chinese buying in the past month. ‘The demand is unbelievable. The size of the orders is enormous,’ said one senior banker, who estimated that China had imported about 200 tonnes in three months.”

The Brics, EEB, traded lower. The Yahoo Finance chart of Emerging Market Financials, EMFN, Brazil Financials, BRAF, and India Infrastructure, INXX, shows that the Brazil Financials and the India Financials are leading the Emering Market Financials Lower. It is the financial stocks that are leading the way down in Brazil and India.

Latin America Small Caps, LATM, traded lower.

Asset management company Blackstone Group, BX, rose manifesting an evening star on February 3, 2011. Real Estate, IYR, traded lower, with Retail REIT, NorthStar Realty Finance, NRF, and Residential REITS, Equity Residential Property Trust, EQR, and Post Properties, PPS, leading the charge lower today in the real estate sector. A market top like we are seeing today could be an opportune time to sell these short as Brian Louis and David M. Levitt of Bloomberg Businessweek report  U.S. Commercial Property Recovery Spares Economy Another Blow. “From Manhattan office towers to apartments in Florida to retail properties in Washington, commercial real estate values are rising, defying predictions of a collapse that would drag the U.S. economy back into recession. Prices of commercial properties sold by institutional investors surged 19 percent in 2010, the second-biggest gain on record, according to an index developed by the MIT Center for Real Estate. Investments in office properties, the largest part of the market, more than doubled last year to $41.6 billion, according to Real Capital Analytics Inc., which tracks commercial property sales globally.”

Kulicke and Soffa Industries, KLIC, designer and manufacturer of equipment used to assemble semiconductor devices, fell 4.0% lower from its recent high. This fall lower suggest that now is a good short selling opportunity as the manufacturers of semiconductors are likely to fall before the producers.

The small cap information technology shares, XLKS, rose 1.0% today;  Retail, XRT, 1.4%; Semiconductors, XSD, 1.5%; Networking, IGN, 3.9%; Dow Internet, FDN, 1.0%, Internet Retail, HHH, 0.6%, Nasdaq Internet, PNQI, 0.6%

Network Application, NTAP, +1.6%

EMC Corp, EMC, +0.6% to a new high.

Information Storage manufacturer,  NVIDIA Corp, NVDA, +2.4%

Internet Retailer Amazon, AMZN, +1.3%

DRAM chip manufacturer, Micron Technology, MU,  +1.4%

Computer peripheral manufacturer, Universal Display, PANL, +1.1%

Restaurant, Chipotle Mexican Grill, CMG, +2.9%

Internet Capital Group, ICGE, recovered 12.5% this week.

Corn, CORN, +2.2%. Tin, JJT, +1.7% today.

Dow Theory suggests that a market turn lower, is at hand. Dow Theory, in simplified terms maintains that the transportation and  industrial shares make market turns together. The Transports, IYT, have turned lower while the Industrials, IYJ, are moving higher, and the Financials, IYF, are residing at a double top.  Airlines, FAA, turned down with the announcement of QE2.  

The fall lower in the Nasdaq Biotech, IBB, and the S&P Biotech, XBI, suggests that the age of profitable investing in advances life sciences is done and over.

Also Small Cap Consumer Discretionary, XLYS, Retail, XRT, and the automotive stocks have fallen lower as can be seen in the ongoing Yahoo Finance chart of Fidelity Automobiles, FSAVX, IBB, XBI, IYT, XLYS, and XRT. The automobile stocks have been the great swing stocks of the economic recovery since the financial and commodities and carry trade crash of 2008. Now, American Axle, AXL, Autoliv, ALV, Magna International, MAG, Tenneco Automotive, TEN, TRW Automotive Holdings, TRW,  Johnson Controls, JCI, will all be swinging lower.

Utilities, XLU, has ominously tuned lower.

6) … The world is at an inflection point both economically and politically
The Age of Deleveraging is about to commence as World Stocks, VT, are topping out, and as Commodities, DJP, are now turning lower. Risk avoidance will replace risk appetite. Disinvestment will replace investment. Unwinding carry trades will replace carry trade investing, which will be reflected in the carry trade ETN, ICI, falling further in value. The world is passing from The Age of Leverage characterised by debt expansion, economic growth and expansion and prosperity  …  and passing into The Age of Deleveraging characterised by debt deflation, economic contraction and austerity. The Morgan Stanley Cyclical Index, $CYC, will soon be turning lower, signaling the end of profitable investing long, the companies that both direct and reflect investment and economic expansion. The current expansion that came with Quantitative Easing I, and II, as well as the recovery of the Euro, with the announcement of and successful bond issuance of the Monetary Authority, will be coming to an end very soon. Then comes economic deflation and contraction.    

And we see waves of political unrest sweeping throughout Egypt as Hamza Hendawit of the Associated Press reports that tens of thousands packed central Cairo Friday, waving flags and singing the national anthem, emboldened in their campaign to oust President Hosni Mubarak after they repelled pro-regime attackers in two days of bloody street fights. Similar news is communicated across the globe: Hundreds of thousands of Egyptians protest on the 'Day of Departure', AMERICAblog News, relates; Egypt Protests: Anti-Mubarak Protestors Attacked By Pro-Government Loyalists For Second Day,The Huffington Post says; and Egypt's 'Final Push' Protests Begin, IntelliBriefs reports.

7 … Global leaders are jostling for power calling for an abandonment of traditional economic and political structure and establishing of new frameworks, that is framework agreements.

The prior age, that being the neoliberal Milton Friedman, Free To Choose Floating Currency Regime, is passing away due to sinking currencies, perhaps better said competitive currency devaluation at the hands of the FX currency traders.  A new age is dawning, Leaders meet in summits, and then announce policies which establish the rules of investing and political expression. The word, will and way of the Leaders becomes law superseding Constitutional Law and the Historical Rule Of Law. The Leaders, in announcing Framework Agreements, waive national sovereignty and appoint stakeholders who rule sovereignly. People are united together in regional economic governance. Seigniorage does not come not come by a state central bank issuing sovereign debt. Instead moneyness comes by bail out agreement or via regional bonds issued by monetary authorities; a case in point are the Eurobonds issued by the EFSF. Thus the Eurozone now has a debt union and a common treasury to supplement the moneyness that has come via the ECB purchasing bank and sovereign debt. Through such policies, debt seigniorage, that is debt sovereignty, has been compromised and eclipsed by the regional leaders.       

Mark Foster, group chief executive, Management Consulting, Accenture, in thoughts about World Economic Forum, WEF,  2011 in Davos, writes: He, President Sarkozy, described a vision of a new global architecture for collaboration in an interdependent world.  In the Q and A which followed, President Sarkozy was deeply emphatic about the long-term future of the Euro at the heart of a durable Europe despite recent uncertainty.It is clear to me that the general tone of optimism which is pervading Davos this year has to be set against the context of ongoing global risks and tensions.  It is not clear that the G20 can solve all this but I would agree with the President that it has to play a more significant role and more global governance must be vested.

In similar vein, Assistant Secretary Esther Brimmer delivering remarks at a forum hosted by the Brookings Institution’s Managing Global Insecurity Project: “This Administration’s engagement at the UN is at the core of our efforts to build a global architecture to address the challenges of the 21st century. We’ve elevated the G-20, to successfully promote economic coordination in response to the world economic crisis. … Indeed, President Obama’s National Security Strategy prioritizes multilateral engagement precisely because we cannot divorce core national security interests from robust and sustained multilateral engagement. “

Open Europe In Press Summary for February 3, 2011 relates Germany Angered By Commission’s Plans To Cap Trade Surplus In The Eurozone:  “Open Europe has published a new briefing arguing that, whereas Greece is unlikely to make it through this year without debt restructuring or additional outside help, the specific proposal for restructuring being discussed by EU leaders is not a sufficient solution to Greece ’s debt problems or its lack of competitiveness. The briefing shows that EU plans for a Greek restructuring would only cut Greece ’s debt by between 2.4% and 4.2%, whereas the country would need to have more than one-third of its debt written off to return to sustainability. The findings are cited by the WSJ and the Irish Daily Mail.

Handelsblatt and Der Spiegel report on the dispute between the European Commission and the German government over new plans to cap eurozone countries’ trade surpluses at 4% of GDP, which could curtail Germany ’s exports. German Economy Minister Rainer Brüderle said that he considered the targets “absurd”, adding that “the proposal does not fit a modern competitive Europe .”

Meanwhile, France and Germany are due to present their plan for a ‘pact for competitiveness’ at tomorrow’s European Council summit. German Chancellor Angela Merkel will today meet Spanish Prime Minister José Luis Rodríguez Zapatero in Madrid to discuss the details of the pact. Le Figaro reports that French President Nicolas Sarkozy wants to include a ‘golden rule’ in the French Constitution – a sort of balanced budget rule inspired by Germany ’s ‘debt brake’. La Croix notes that the French Socialist Party has called the idea “grotesque”.

A separate article in the paper reports that yesterday, in a speech to the European Parliament, European Commission President José Manuel Barroso implicitly criticised the Franco-German plans, saying: “Establishing a system of reinforced economic governance for the EU, and in particular the euro area outside the Union framework raises important, and politically very sensitive, questions.”

Handelsblatt reports that, in spite of increasing inflation in the euro area, the ECB will probably not raise interest rates for the moment, for fear of further destabilising peripheral eurozone economies. Open Europe ’s Pieter Cleppe is quoted in the Irish Daily Mail saying that if the ECB decided to raise interest rates in the near future, “it would kill any Irish recovery.”

EUobserver reports that credit rating agency Standard & Poor’s has downgraded Ireland ’s sovereign rating by one notch. An Irish Independent/Millward Brown Lansdowne poll shows that only one in three people believe that their money is secure in an Irish bank. El País quotes Spanish Secretary of State for Economy and Industry José Manuel Campa saying that Spain will “never” need a bailout.” Open Europe briefing Open Europe press release Les Echos Handelsblatt Spiegel FT European Voice El País Le Monde Le Figaro Le Figaro 2 EurActiv La Croix AFP WSJ WSJ 2 FT El País 2 Handelsblatt WSJ Handelsblatt WSJ: Smith Guardian Telegraph FT EUobserver Irish Independent Irish Independent 2 EurActiv

In Today’s News

1)…  William reports An Italian parliamentary committee on Tuesday rejected the decree on municipal fiscal federalism, which approval had been made as provided by the Northern League to maintain its support for the government of Silvio Berlusconi.

An Italian parliamentary committee on Tuesday rejected the decree on municipal fiscal federalism, which approval had been made as provided by the Northern League to maintain its support for the government of Silvio Berlusconi.  With 15 votes in favor and 15 against, the bicameral committee did not pass the decree in question, since the regulation states that a tie is tantamount to rejection of the initiative.

After the voting, Berlusconi summoned an emergency meeting of the Executive.  On the eve, Umberto Bossi, leader of the Northern League (political party that gives external support to the Executive) stated that without the approval of the decree on federalism (which provides more tax powers to the regions) would go to early elections.

However, also minister for reforms, which now may decide to submit the decree to the full vote of both houses of parliament, questioned by reporters upon leaving the meeting with Berlusconi corrected: “I do not think early elections.”

Berlusconi said he expected to see the outcome of the vote in the Chamber of Deputies, also scheduled for this Thursday on the request from the Milan prosecutor’s office to authorize the search of the offices of Giuseppe Spinelli, count the prime minister.

Spinelli allegedly paid the women who participated in the celebrations of the prime minister, accused of prostitution of a minor and abuse of power for having intercourse with young Moroccan Karim El Mahroug, known as Ruby. (She is the daughter of a penniless Indian immigrant, and known as “Ruby the Heart-stealer” and also “Ruby the Heartbreaker”. In related article Tim Hedges writes Umberto Bossi is the man to be watched; he is pulling the strings in one of the West’s great democracies.)

2) …
Jody Shenn and Prashant Gopal of Bloomberg: “Home loans that inflated the U.S. housing bubble by giving borrowers the choice of cutting interest payments in exchange for higher balances are fueling the fastest gains in the mortgage-bond market. Prices for senior bonds tied to option adjustable-rate mortgages, called ‘toxic’ by a government commission, typically jumped 6 cents to 64 cents on the dollar in the past month… Option-ARM debt tumbled to as low as 33 cents in 2009.”  I comment that this is consistent with Junk bond, JNK, rising 1.40% this week. In the last two years, Yahoo Finance reports that both the distressed investment fund FAGIX and the Leveraged Buyout ETF, PSP, have risen 80%, far exceeding the performance of Gold, Gold Mining Stocks and Junk Bonds.

The chart of Global Listed Private Equity, that is Leveraged Buyouts, PSP, shows that it has risen to resistance and is very safe to sell short. Personally, I do not engage in short selling as I am not concerned about return on my investment, but rather return of my investment. I am concerned that during a time of investment stress, I may not have access to my funds.

3) …
Brendan A. McGrail and Matt Robinson of Bloomberg report of the darkening clouds foretelling of a municipal bond and municipal funding crisis: “Sales of municipal bonds this week plummeted to a five-month low as issuers hesitated to come to market amid the steepest interest-rate rise since 2009.  States and municipalities offered about $3.27 billion in fixed-rate debt this week.” Chart of Municipal bonds, MUB, shows that they manifest bearish engulfing and fell 0.73% this week in an Elliott Wave 3 of 3 Down. The Elliott Wave 3 of 3 Down is the most destructive of all economic waves; it for all practical purposes wipes out all of the wealth accumulated in the investment’s rise to a Wave 5 high. Thus it is reasonable to believe that municipal debt financing will soon fail. Michael Quint of Bloomberg reports:  “Governor Andrew Cuomo plans to pay part of New York’s pension contributions with $884 million of IOUs, joining California’s Orange County in borrowing to meet retirement costs. The … governor …  included the IOUs that pay 5% interest in his $132.9 billion budget, which he said closed a $10 billion deficit without borrowing.”


4) …
Inflation Destruction is one of the reasons why the currency traders have rightly and profitably sold the Emerging Market Currencies, CEW, short this year; which has resulted in the Emerging Market Countries, EEM, Bonds, EMB, and Financials, EMFN, falling lower.  Indonesia, IDX, had seen hot money flows up until the announcement of QE 2 as well as through the end of last year. But this year investors have gone short the market in Indonesia as Novrida Manurung and Widya Utami of Bloomberg report: “Indonesia’s inflation accelerated to a 21-month high. Consumer prices in Southeast Asia’s biggest economy rose 7.02% last month from a year earlier.” And they also report: “Indonesia’s central bank unexpectedly raised its benchmark interest rate for the first time in more than two years after inflation climbed to a 21-month high.  The central bank increased its reference rate by a quarter percentage point, to 6.75%.” The chart of Indonesia, IDX, shows it rising to the crest of an Elliott Wave 2 up.

The chart of the Emerging Markets,
EEM, shows that it resides in the middle of a broadening top pattern that goes back to October 18, 2010, which is the time short after QE 2 was first announced.

5) …
Shaun Richards reports More problems for the Greek economy: I have regularly found myself at odds with the official optimism on the Greek economy as I fear that the effect of the austerity package will be to further depress economic growth. I report with sadness that Greece still has enormous economic problems as these figures released by EL-STAT yesterday show.

The volume of retail trade (i.e. turnover in retail trade at constant prices), excluding automotive fuel, decreased by 13.6% in November 2010, compared with November 2009. The Index in November 2009 recorded a decrease of 8.7% compared with November 2008.

As you can see there are real problems here as if anything the slowdown is accelerating. I fear for economic growth figures based on this and I also worry about the impact on tax revenues as sales tax revenues must be hurt by this. Also we can see that Greece is also afflicted by the price pressures affecting the rest of the world.

The Producer Price Index in Industry (PPI) in December 2010 compared with December 2009 recorded a rise of 7.6%. The index in December 2009 had recorded an increase of 5.0% compared with December 2008. The PPI in December 2010 compared with November 2010 recorded a rise of 1.8%.

This contrasts with an annualised rise of 5.9% in November so again the problem is deteriorating. Putting the two together does not a pretty mix. Rising price pressure does not go well at all with falling retail sales. I am reminded at this point that the ECB is beginning to look like it is considering an increase in its official interest-rate which would impact on the weaker Euro zone nations such as Greece most of all. The new orders index did at least so some growth so let us hope for Greece’s sake that there are some signs of a recovery building in the background.

6) …
Michael R. Blood of the Associated Press report Cheney Calls Mubarak A Good Friend, US Ally
Speaking at the Reagan Ranch former Vice President Dick Cheney called Egyptian President Hosni Mubarak a good friend and U.S. ally, and he urged the Obama administration to move cautiously as turmoil continued to shake that nations government. Cheney’s comments came a day after President Barack Obama pressed Mubarak to consider his legacy and exit office in a way that would give his country the best chance for peace and democracy. This as Chris Mardsen of reports Massive anti-government protest on Egypt’s “day of departure”

7) …
Tom Eley of reports According to a new study by the Wall Street Journal, total compensation handed out to employees at publicly traded Wall Street banks hit a record $135 billion in 2010, an increase of 5.7 percent over the combined payout in 2009.