1) … The seigniorage of the Milton Friedman Free To Choose Currency Regime, which was based upon Quantitative Easing and Quantitative Easing 2, failed on February 22, 2011, when the distressed securities taken in by the Federal Reserve under its TARP Facility traded lower, as is seen in the Fidelity mutual fund FAGIX trading lower. This resulted in world stocks, ACWI, turning lower.
2) … Today, seigniorage continued to fail, as is seen in FAGIX, continuing to fail, which induced the banks, KBE, to trade 2.1% lower and world stocks, ACWI, to trade 1.4% lower.
We live in a bank centric and also an oil centric world. The world’s leading banker Ben Bernanke, in a semiannual report to Congress, told politicians that commodity price inflation, and oil prices more specifically, could pose a threat to economic growth and price stability if sustained at high levels, while at the same time reassuring markets and politicians that inflation remained low and expectations stable according to Forbes Blog.
The Yahoo Finance chart of Banks, KBE, compared with the Too Big To Fail Banks, RWW, Nasdaq Community Banks, QABA, the European Financials, EUFN, the Brazilian Financials, BRAF, India Earning, EPI, and China Financials, KBE, CHIX, RWW, QABA, EUFN, BRAF, EPI, shows the US Banks, KBE, leading the world financial institutions, IXG, and, XLF, lower.
Leading the Banks lower were the institutions which rose in value the most during the last two years under Ben Bernanke’s expanding seigniorage. These included Fifth Third Bancorp, FITB,
Huntington Bankshares, HBAN, Regional Financial, RF. Bank of America, BAC, Citigroup, C, Wells Fargo, WFC and Sun Trust Banks, STI.
The contraction of seigniorage, that is moneyness, is the root cause of the failure of stock markets worldwide, VT, -1.7%, as well as:
Turkey, TUR, -5.4%. it is an inflationary leader; that is it has been a carry trade investment leader; it was inflated up by hot money flows; and today experienced great inflation destruction.
Gulf States, MES, -3.5%
Australia, EWA, -2.2% and its Westpac Banking, WBK, -3.6% documenting that it is the banks that are leading the world lower in a downward spell of inflation destruction
South Africa, EZA, -2.0%
The United Kingdom, EWU, -2.0% and Llyods Bank United Kingdom, LYG, -2.2%, and HSBC, HBC, -3.4%
Phillippines, EPHE, -2.0%
Europe, VGK, -1.9% and the European Financials, EUFN, -1.%
Austria, EWO, -1.8%
United States, VTI, -1.7%
Brazil, EWZ, -1.6% and the Brazil Financials, BRAF, -1.3%
Sweden, EWD, -1.5%
Switzerland, EWL, -0.8% and UBS Bank, UBS, -3.2%
The contraction of seigniorage seen in the fall of the distressed securities mutual fund FAGIX means the beginning of the end of credit as it has traditionally been known. Today’s leading credit suppliers fell sharply; these included: Dollar Financial, DLLR, World Acceptance, WRLD, American Express, AXP, Capitol One Finance, COF, Discover Financial Services, DFS, and Nelnet, NNI, and Capitol Source,CSE.
The Russell 2000, IWM, stocks being highly dependent upon good banking and financial conditions were among the top falling stocks; these included Deckers Outdoor Advertising, DECK, and Sunrise Senior Living, SRZ,
Real Estate REITS fell strongly. These included
Residential REITS Post Properties, PPS, and Equity Residential Property Trust, EQR;
Retail REITS such as Gilmcher Realty Trust, GRT, and SL Green Realty, SLG.
Industrial and Office REITS such as First Industrial Realty Trust, FRI. and Extra Space Storage, EXR.
Health Care REITs such as, Ventas, VTR.
Commercial Property REITs such as Starwood Property Trust, STWD.
Hotel And Motel REITs such as FelCor Lodging Trust, FCH.
Hotels such as Starwood Hotels, HOT, fell strongly.
The fall in the Transportation shares, IYT, gave clear, cogent and convincing evidence that a bear market is underway. These shares are irretrievably broken and no current seigniorage can restore them. The chart below shows the Transportation stocks have been killed off by inflation destruction. Yes, killed stone dead. There is no remedy, recourse or revival known for death by inflation destruction.
The Dow, DIA, the New York Composite, NYC, the Nasdaq 100, QTEC, all fell lower, as the bear market of all bear markets has commenced.
Sectors falling strongly included
Airlines, FAA, -3.1
Homebuilding, ITB, -2.9%
Transportation, IYT, -2.7%
Real Estate, IYR, -2.7%
Small Cap Consumer Discretionary, XLYS, -2.6%
Small Cap Energy, XLES, 2.6%
Energy Service, OIH, -2.5%
Basic Materials, XLB, -2.5%
Steel, SLX -2.5%
Solar, KWT, -2.5%
Internet Retail, HHH. -2.3%
Metal Manufacturing, XME. -2.2%
Too Big To Fail Banks, RWW, -2.2%
Banks, KBE, -2.2%
Semiconductors, XSD, -2.1%
Dow Jones Energy Services, IEZ, -2.1%
Small Cap Revenue Firms, RWJ, -2.1%
Dow Basic Material, IYM, -2.1%
Leisure & Entertainment, PEJ, -2.0%
Nasdaq 100, QTEC, -2.0%
Russell 2000, IWM -2.0%
Nasdaq 1000, QTEC, -2.0
Energy, XLE, -1.9%
Coal, KOL, -1.9%
Small Cap Pure Value, RZV, -1.5%
The world did not witness debt deflation today, as much as it witnessed inflation destruction, which Urban Dictionary defines as the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies. Companies falling massively to inflation destruction included
Consumer Discretionary, SanDisk, SNDK,
Semiconductor Manufacturer, NVIDIA, NVDA
Agriculture Implement Manufacturer,, CNH Global, CHN,
Semiconductor Equipment Manufacturer, Kulicke and Soffa Industries, KLIC,
Retailer, Saks, Inc, SKS,
Textile Manufacturer, Unifi, UFI,
Computer Peripheral Manufacturer, Universal Display, PANL,
Truck Manufacturer, Navistar, NAV,
Machine Tools Manufacturer, Timken, TKR,
Industrial Leader, GrafTech Intl, GTI,
Medical Appliance Manufacturer, Intuitive Surgical, ISRG,
Printed Circuit Board Manufacturer, TTM Technologies, TTMI,
Global Industrial Metals, Headwaters, HW
Tableware products, Libbey, LBY,
Clean Energy producer, Exide Technologies, XIDE,
Consumer Discretionary Harley Davidson, HOG, a popular consumer discretionary stock owned by many mid cap funds.
Frankly the list goes on and on and on. The idea here is that Ben Bernanke’s QE 2 Moneyness inflated the stocks shown. Now they will are going on to the pit of Financial Abandon because of inflation destruction. No country, no investment can experience the stimulus of negative interest rates and then go on to have a normal experience. Yes, Ben’s ZIRP has taken the world to zero and yes, even beyond.
Bruce Krasting reports “Senator Shelby asked Bernanke to explain how he came to the $600b QE2 program. The answer came at minute 32 of this C-SPAN clip. Ben explained that he felt that a monetary ease equivalent to a 75 BP reduction in the Fed Funds rate was in order to avoid deflation. He equated $150-200 billion of QE as being equivalent to a 25BP reduction in short term rates. The justification for QE all along has been that monetary policy is range bound by zero interest rates. QE brings us below “0” in equivalent policy.” The sum of QE 1, QE lite (the top off of QE1) and QE2 is $2.35 trillion. Using Bernanke’s formula you get a range of 4% to 5% as the approximate interest rate consequence of QE. (2.35/.15 or 2.35/.2) That is an extraordinary number. The Fed’ ZIRP policy set interest rates at zero. QE has brought that to -4.5% (average) based on Ben’s numbers.”
3) … The world is passing has passed through an inflection point: the world has passed from the Age of Leverage and into the Age of Deleveraging with the exhaustion of Quantitative Easing and with the failure of yen carry trade investing, as seen in the failure of the Optimized Carry ETN, ICI, on the very day that QE 2 was announced.
The Age of Leverage was characterised by debt expansion, credit liquidity, stability, economic growth and expansion and prosperity … The Age of Deleveraging is characterised by inflation destruction, debt deflation, credit ill-liquidity, instability, economic contraction and austerity.
The former age of economic growth and expansion saw a tremendous use of credit, particularly the securitization of junk bonds, JNK, and the use of credit in leveraged buyout deals, LBOs, which is traded by the ETF, PSP; both fell significantly lower today, adding to the termination of credit.
Volatility, VXX, rose and the Morgan Stanley Cyclical Growth Index, $CYC, fell lower as did the Russell 2000 Growth shares, IWO, and the Morningstar Mid Cap Growth, JKH
Loss leaders in the Morgan Stanley Cyclical Index were International Paper, IP, and Alcoa Aluminum, AA. Investors can no longer profit from investing long in the stocks that underwrite growth and development.
The world entered into Kondratieff Winter on February 22, 2011 as world stocks, ACWI, and the S&P, SPY, both entered an Elliott Wave 3 Down.
World Stocks, ACWI, Monthly fell 1.4% so far this month, ending eight months of QE 2 seigniorage, if one starts counting in July. I personally never dreamed that Ben Bernanke would come out with a printing of money to buy US Treasuries as it is a case book, that is a text book, example of debt monetization which only debases the currency of any central bank that attempts it. Perhaps the reason the European stocks, VGK, fell more than the US Stocks, VTI, today is that its central Bank, the ECB, is laden with bad sovereign debt purchased from the EU Periphery countries, that is Portugal, Italy, Ireland, Greece and Spain, the so called PIIGS.
S&P, SPY, Weekly, fell 1.7% for the week; marking a second week of decline; thereby establishing that an Elliott Wave 3 decline has started; this are the most severe of all downward waves as for all practical purposes they destroy all accumulated wealth. I genuinely fell sorry for the tens millions of people who have not been told and have no idea as to what is coming.
Utilities, XLU, fell lower into their Elliott Wave 3 Decline. Debt laden NextEra Energy, NEE, fell from a triple top high. Award winning Southern CO, SO, fell from its Elliott Wave 5 High; even the best of the best of companies will be falling lower now.
The companies, sectors and countries which were the first victims of inflation destruction fell very hard today; these included mobile home builder Cavco Industries, CVCO, the airlines, FAA and the Phillippines, EPHE,
Bonds, BND, traded basically unchanged
The currency leverage curve, RZV:RZG, manifested a rare black filled harami candlestick and traded unchanged as world currencies, DBV, emerging market currencies, CEW, and the US Dollar, $USD, all traded basically unchanged.
Commodities, DJP, rose slightly, as Natural Gas, UNG, and GAZ, fell while Oil, USO, BNO, and DBC all rose, and Timber, CUT fell. I believe the commodity timber will be a fast faller. As Ben Bernanke spoke today on commodity prices, investors poured money into the gasoline commodity, UGA which rose 3.6%
The precious metal, JJP, Gold, GLD, and Silver, SLV, exploded higher. Gold, GOLD, is undeniably now the sovereign currency and storehouse of investment and monetary wealth as is seen from the chart of gold relative the Australian Dollar, GLD:FXA.
4) Out of a soon coming economic and investment flameout, a Chancellor, and a Banker will arise to provide a common EU Treasury and a universal seigniorage with austerity providing fairness for all.
Shaun Richards relates in article Equities Rally With Oil Prices Commodities And Inflationary Pressure And Is Equality Necessarily Fair? “This morning has seen the publication of the purchasing managers index for manufacturing in February and the figures are strong with the number confirmed at 59 on a scale where a number above 50 indicates growth. So good news except for two main influences. The first links directly with the news on commodity prices reported above. Input price inflation climbed to record rates in Germany, France, Italy, Spain, the Netherlands and Austria, reached a near-survey peak in Ireland and the fastest since July 2008 in Greece.”
“Greece: I will just give you the main points here as they are fairly self-explanatory. Latest data from Markit showed that February progressed much as 2011 began, with manufacturing output, new orders and employment all falling sharply, and price pressures increasing. We are again seeing signs of a two-speed Europe or perhaps even worse a three-speed one. Whilst these are only survey results and therefore some caution is required they do reflect other data. As there are now signs of increasing inflation put yourself right now on the Governing Council of the European Central Bank. What level of interest-rates would you set for the seventeen nations of the Euro zone? My contention is that at this time there is not a correct interest-rate as the concept of one size fits all needs much more economic convergence than we are seeing. If you raise rates to prevent Germany over-heating you will be hurting Greece, Ireland and Portugal in particular and if you do not you may be letting inflation into her system. As the Alan Parsons Project put it “Damned if I do, damned if I don’t” Crossing your fingers and hoping for the best is hardly a strategy at all.”
Bruno Waterfield in the Telegraph article Ireland’s New Government On A Collision Course With EU reports: “Enda Kenny, Fine Gael’s leader, will later on Sunday, start to form a new government, almost certainly with Labour, after full election results under Ireland’s complicated PR system come through.”
“Both Mr Kenny and Eamonn Gilmore, Labour’s leader, have promised Irish voters that they will renegotiate the EU-IMF austerity programme to reduce the burden for taxpayers and to force financial investors to shoulder some of the bank debts currently paid out of the public purse.”
“At a summit of centre-right EU leaders in Helsinki next Friday, Mr Kenny will use his position as Ireland’s new Prime Minister to beg the German Chancellor, Angela Merkel, and French President, Nicolas Sarkozy, for concessions ahead of an emergency March 11 Brussels summit to restructure the euro zone.”
“But neither the two European leaders nor the European Central Bank or EU will permit any substantial changes, despite the huge popular Irish revolt against the bailout.”
“Chancellor Merkel will tell Mr Kenny that if he wants to reduce the high, punitive 5.8 per cent interest rate charged on EU loans then Ireland will have to give up its low corporate tax rates – a measure regarded as vital to Ireland’s recovery and one of the few economic policies it has not yet handed over to Brussels or Frankfurt.”
Could Mrs Merkel arise to be The Sovereign? Perhaps so. Team Europe relates that European federalist Romano Prodi, EU Commission President said on October 13, 1999: “We must now face the difficult task of moving towards a single economy, a single political entity .. For the first time since the fall of the Roman Empire we have the opportunity to unite Europe.”
Out of a soon coming economic and investment flameout, a political and economic unified Europe, a United States of Europe, will soon be a reality, as a Chancellor, that is a Sovereign, and a Banker, that is a Seignior, will arise to establish a new seigniorage with austerity for all. Their rule will be fair, in that all get the same autocratic treatment; yes democratic deficit for everyone. It will very much be a revived Roman Empire, in as much as the German people, an many others are descendants of those living in the previous world wide Roman Empire, and in as much as two European leaders Angela Merkel and Jean-Claude have received the highly valued Charlemagne Prize.
5) … Suggested Reading
Nature Economist Elaine Meinel Supkis in May 2, 2008 article Gargoyles Guard Funny Money™ For Santa Claus wrote on quantitative easing and Ben Bernanke’s desire to go to zero and even below and likened it to a journey into the Cave Of Wealth And Death: “The US Fed has found ways to feed the Debt Monster and the Derivatives Beast and so we will continue on the course of infinite debt. The TAFL window run by Helicopter Ben is DOUBLING the amounts it is lending to all and sundry. Including a host of bankrupt European banks! So long as the Fed can pretend to not be bankrupt, they can prop up the entire G7 banking systems. Because the Fed is DOUBLING its Funny Money™ output, pundits are claiming, 'The Banking Crisis Is OVER! Open the party keg of beer!' The yield curve between the value of bond and the new super-low rates now mean we will have a super-duper bubble.”
“Belief in an underground world that is filled with riches and is lined with gold and diamonds, etc, is very fundamental to most humans if not all humans. This is the Cave of Death where wealth is made. Wether it be aliens, Atlantians or dwarves, the beings who live in deep caves and are invisible but who lure humans to their fates using gold as a lure, this is very, very ancient.”
“Like all the magic creatures who inhabit our souls, the guardians of these endless caves are clever, mind readers and prone to playing tricks on us. Being part of our psyches, they are invisible unless one does occult magic, then they 'appear' like Faust with his magic circles summoning the devil. Although it is fun to imagine all this, the truth is, the endless wealth really is there for the taking. Only it leads to death and destruction. This is why turning aside from the temptation of total, infinite wealth is life and death, literally. The Fed, for example, when offered a chance to save our futures, to protect America and fix the problems that are causing us to head into total bankruptcy, chose to do the opposite. I sense that everyone around me in this nation want to have Funny Money™ rather than real wealth!”