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Bank Stocks Fall On Barrage Of Lawsuits … Industrial Stocks Fall On Exhaustion Of Quantitative Easing…. Wolfgang Schäuble Calls For A Eurozone Fiscal Union … Italians Are Not Germans, Yet They All Will Be One In Debt Servitude

Financial Market report for Septemeber 2, 2011

1) … Silver, SLV, rose 4%, and Gold, GLD, 3%, as Deutsche Bank, DB, and Bank of America, BAC, fell lower on likelihood Fannie Mae’ and Freddie Mac’s overseer FHHA, will sue the banks, turning world stocks, ACWI, 2.4% lower.
Bonds are the last fiat safe haven available  There was a flight to safety in Bonds, BND, as Zeroes, ZROZ, 30 Year Treasuries, EDV, and Ten Year Government Notes, TLT, soared. The Flattner ETF, FLAT, rose in value, as the 10 30 Yield Curve, $TNX:$TYX, flattened on the demand for the longer out US Government debt, which took longer duration corporate bonds, BLV, and corporate bonds, LQD, up, as the former manifested a likely evening star pattern. Build America Bonds, BAB, rose strongly. The interest rate on 10-yr treasuries, $TNX, touched a record low on Friday September 2, 2100, below 2.0%, to close at 1.996. Money flew into Treasuries as a last safe haven, first from European Sovereign Debt Crisis, with Italy’s 10-year yields jumping 21 bps this week to 5.27%, and with this afternoon’s 397 bps a record close for the 5-year Italian Credit Default Swap; and secondly from lack of  growth prospects in stocks. The 30 year interest rate, $TYX, is the lowest since January 2009.

The signs are in that a recession, well a depression, is on the way and the monetary policy which has been instrumental in promoting the increasingly vulnerable global government finance bubble, BWX, is about to burst.

Energy service stocks, OIH, fell 3.1% and IEZ, fell 3.5%, as Oil, USO, fell 2.4% lower, with Bloomberg reporting Oil extends drop after jobs data; Gulf of Mexico rigs Shut as storm builds. Oil dropped in New York, trimming a second weekly gain, as the U.S. failed to add jobs last month, spurring bets that fuel consumption in the world’s largest economy will suffer.

The Too Big To Fail Banks, RWW fell 5.5%, and the Banks, KRE, 4.8%, as Mike Mish Shedlock writes Fannie, Freddie overseer FHHA set to file suit against Bank of America, JP Morgan Chase, Goldman Sachs, and Deutsche Bank.

Industrial stocks, XLI, fell 3.2%, lower on the exhaustion of quantitative easing, as Mike Mish Shedlock relates the Payroll Report shows diminished growth protects in aricle Zero jobs growth, unemployment rte flat at 9.1%. Mr Shedlock continues: ‘Over the past 12 months, average hourly earnings have increased by 1.9 percent. The Consumer Price Index for All Urban Consumers (CPI-U) was up 3.6 percent over the year ending in July.Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.” And he continues: “The official unemployment rate is 9.1%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6. While the "official" unemployment rate is an unacceptable 9.1%, U-6 is much higher at 16.2%. Things are much worse than the reported numbers would have you believe. Moreover, the unemployment rate is barely better than it was a year ago. It would actually be worse than a year ago were it not for people dropping out of the labor force.”

And Reuters reports ECRI reports U.S. Leading Economic Growth Gauge sags in latest week: The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index eased to 122.5 in the week ended Aug 26 from 122.7 the previous week. That was originally reported as 122.8 percent. The index's annualized growth rate fell to minus 4.3 percent from minus 2.1 percent, hitting its lowest level since early November 2010.

The investment demand for gold remains strong as gold is clearly reacting to stimulus efforts by the US Federal Reserve, Eurozone bank stress, and US bank stress.

Strong fallers included
RWW -5.5% The fall in the Too Big To Fail shares suggests that the big bganks are now history.
EVX 4.9% Industrial damage repair shares fell strongly.
TAN 4.9% The fall in solar shares reflect the death of profitable investment in general.  Only the Chinese state subsidized solar stocks will survive in some form.
KBE 4.2% The fall in bank shares means the end of banking, and investment banking, as it is currently known. Under Neoauthoritarianism, banks will be nationalized and integrated with the Government and come to be known as Government Banking, or Gov Bank for short.
PSCT 4.3 Small cap technology shares plummeted on lack of growth prospects.
PSCE 4.2 As did small cap energy shares.  
IYG 4.2 The US financial industry is dead.
XLF 4.2 The ability of financial industry to stimulate the economy is history.
KCE 4.0 Investment Banking is dead; w are witnessing its death rattle.
IAI 4.0 Stock brokerages are dying.
SLX 3.9 Steel plummeted.
RZV 3.9 Small cap value shares are the litmus test of the capability of the Milton Friedman Free to Choose Regime to serve investors; these fell lower in July 2011, with the exhaustion of quantitative easing.  
CHIE 3.8
PSCI 3.8 Small cap industrial shares plummeted on the lack of growth prospects
ITA 3.8 Investment in Aerospace and Defense is no longer a profitable investment.
VROM 3.8 Investment in the Automobile Industry is no longer a profitable endeavor.
IWN 3.7
ITB 3.5
PSCD 3.5
IEZ 3.5
RWJ 3.5
IEZ 3.5
IWO 3.5
GEX 3.5
XRT 3.4
EMT 3.2
KIE 3.2
IYJ 3.2
IYT 3.2
COPX 3.2
XSD 3.2

Strong country fallers included
VGK 2.5
EUFN 3.0
AUSE 3.0
EWZ 3.1
EWG 3.2
KROO 3.4
EWQ 3.8
EWI 4.1
The chart of the Swiss Franc,  FXF +0.5, shows three white soldiers and a dark cloud covering  evening star suggesting that its rally is complete

2) … In today’s news
Lydia Polgreen of the NYT reports In India one can now get a number and an identity. Aadhaar, meaning Foundations, “is a road that in some sense connects every individual to the state” says Nandan M. Nilekani, leader of the national ID project. The new number based system of identification, which  uses iris scan and fingerprints, produces a digital persona that connects one to a bank account and a possible better future.

Open Europe reports in an op-ed Le Monde, former French Economy Minister Thierry Breton notes, “Latin Europe is now under the markets’ surveillance. France is not there, but everyone knows that we need to choose which side we are on because 2013 will be the year of a major rendezvous. By then, our country will effectively become the world’s biggest issuer of debt in euros, ahead of Germany and Italy.”

And Open Europe also reports The Economist’s Charlemagne argues that with the eurozone crisis, “the limits of [Jean] Monnet’s method [for European integration] are being reached. Governments are running out of modest steps that can be passed off as technocratic fixes. Short of an unexpected change in the markets, or a sudden return to growth, they must confront a fundamental political decision: if the euro area wishes to avoid the nuclear option of complete disintegration, it will have to make the leap towards fiscal union. Once this decision is taken, other arguments over, say, Eurobonds might be settled. Either way, it is time to set Monnet aside. Tell voters what the real choices are.”

And Open Europe reports a leader in the Telegraph argues, “As our eurosceptic Chancellor finalises the details of another new growth package, We suggest that he defies the EU, and insists that the [EU’s Agency Workers] Directive’s implementation be delayed or abandoned, for the sake of British jobs and businesses. In such dangerous times, extreme measures are sometimes called for.

EUobserver reports that EU member states are split on steps toward a middle east peace plan, specifically over the backing of Palestine’s bid to upgrade its status at the United Nations, with pro-Israel countries such as Germany and Italy calling for a return to Arab-Israeli peace talks instead.

Zero Hedge reports Greek budget expert fired for opposing Europe.

Business Insider reports Eurozone PMI plunged to a two-year low Thursday morning, indicating a worse-than-expected slowdown and triggering declines for the euro on easing expectations. Manufacturing PMI, regarded as an early indicator of recession,fell to 49.0 in August from 50.4 in July, indicating that while GDP is still expanding manufacturing is stalled. According to Credit Suisse, inventories are at their highest since December 2008, but the lack of demand for goods means that manufacturers will probably have to cut production to reduce overhead in the months ahead. If we regard this orders-to-inventories statistic as an early indicator for manufacturing PMI and ISM, then we're likely to see these numbers slip further over the next few months

Between The Hedges relates Bloomberg reports the following three items. Sovereign bond risk climbs to record in Europe after jobs data. European sovereign default risk rose to a record after a report showed employment in the U.S. unexpectedly stagnated in August, adding to signs the global economic recovery is weakening. The Markit iTraxx SovX Western Europe Index of credit- default swaps insuring the debt of 15 governments rose 11 basis points to 310 at 4:30 p.m. in London, surpassing an all-time high closing price of 308 on Aug. 26. Swaps tied to Italian debt jumped 15 basis points to 400, topping last month’s record closing price of 391, according to CMA. Italy’s 10-year bonds dropped for a 10th straight day, the longest run of declines since the euro’s 1999 debut. The difference in yield between Italian securities and benchmark German bunds widened to as much as 325 basis points, while the spread for Spanish notes increased to 309 basis points, both the widest since the European Central Bank started buying the nations’ debt on Aug. 8. Credit swaps on Spain rose 16 basis points to 390, while contracts on Ireland climbed 21 basis points to 798, CMA prices show. Corporate credit in Europe was also hurt, with the Markit iTraxx Crossover Index of default swaps on 40 companies with mostly high-yield credit ratings rising 41 basis points to 695, according to JPMorgan Chase & Co. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers climbed 13 basis points to 248, signaling investors are less optimistic about credit quality.

Euro-Area producer-price inflation quickens. European producer-price inflation accelerated in July, led by higher costs for energy. Factory-gate prices in the 17-nation euro region rose 6.1 percent from a year earlier after a 5.9 percent increase in June, the European Union’s statistics office in Luxembourg said today. The gain was in line with the median of 18 economists’ estimates in a Bloomberg News survey. Prices rose 0.5 percent from June, when they remained unchanged. Crude-oil costs have jumped 18 percent over the past year, adding pressure on companies to raise prices just as economic growth falters. European economic confidence slumped in August as consumers grew more pessimistic.

Manufacturing in India expands at slowest pace in 29 Months. India’s manufacturing grew at the slowest pace in 29 months in August, adding to signs of a global slowdown and indicating interest-rate increases are curbing consumer demand. The Purchasing Managers’ Index fell to 52.6 from 53.6 in July, HSBC Holdings Plc and Markit Economics said in an e-mailed statement today.

Euro Intelligence in its for fee news letter, reports the following items: Spain’s bond auction disappoints, sending 10-year spread again above 3%.  Spanish 10-year spreads rose beyond 3% yesterday on the news of a disappointing bond auction. The FT reports that the latest auction of 5 year bonds raised €3.6bn, close to the midpoint of the indicated range. The average yield was 4.489%, a little less than at the July auction. But this time, the bid-to-cover ratio was only 1.8, signalling weak demand from investors.

Reuters writes Italy is courting disaster with its incoherent budget deficit reduction programme. In a news analysis, Reuters writes that Italy's plan to balance its budget by 2013 lacks detail, does not add up and changes from one day to the next. This makes it more likely that Italy will remained trapped in the crisis. The article quotes market analysts as saying that the Italian government had dragged things out so far that their programme now lacks credibility. ECB support is only seen as a stopgap. One factor that seems have undermined confidence outside Italy was the decision to scrap the wealth tax, and to plug the gaps with a fight against tax evasion – which, of course, never happens. The forecasts for 2012 points towards a recession, or a stagnation at best

Greek deficit reached €15.5bn in July, with economy contracting 4.5%. The Greek economy is shrinking at an alarming rate. Venizelos last week admitted that Greece is likely to contract by more than 4.5% this year, worse than an earlier 3.5% forecast. Greece’s debt, meanwhile, has ballooned to over €350bn. The deficit has climbed to €15.5bn by July, compared to a target of €16.68bn for the entire year

To make up for revenue shortfall, Greece raises VAT by 10pp on food and restaurants.  Parts of state revenue included in this year’s calculations will not be collected until early 2012. To make up the shortfall, the authorities on Thursday raised VAT for food at restaurants and hotels by ten points to 23%. The restaurant sector has described the measure as ruinous and some operators have threatened to withhold the tax to avoid closing down altogether. Tthe Finance Ministry said it would publicize the names of taxpayers who owed the state more than 150,000 euros for over a year, per another Kathimerini. report.

Holger Steltzner asks the eurozone to wake up to the fact that Greece is a lost cause.  After the Greek parliament’s admission that the Greek debt has spinned “out of control”, Frankfurter Allgemeine Zeitung’s economics editor Holger Steltzner asks the eurozone in a front page editorial to wake up to the fact that Greece is a lost cause. “The public service and the private sector have ballooned as a consequence of living on debt and they are not competitive and that is why the ‘rescue billions’ will disappear”,  Steltzner asserts. “What does the EU do with a country that is unwilling to undergo change and structural reform, because there is a lack of political will, of functioning administration and of support of the population?”

France caves in to quicker stability pact sanctions on deficits.  France is apparently ready to cave in on the demands of the ECB, the European parliament and the Commission to accelerate sanctions against countries that violate the 3% deficit rule of the stability and growth pact. Süddeutsche Zeitung reports that France has submitted a compromise proposal seen by the paper in which it accepts that sanctions can be voted by the EU finance ministers with a simple majority that a country does not comply with the rules. That would pave the way for a rapid application of sanctions against a deficit country. If this is confirmed, it could lead to the conclusion of the legislative proposal to toughen the SGP, which has been blocked for months because of divergent views between France, supported by Germany and most other country and the parliament on the decision procedure for sanctions.

Wolfgang Schäuble tells fellow CDU parliamentarians that a big Treaty revision is necessary, involving a significant transfer of sovereignty to EU level. According to mass circulation daily Bild, Wolfgang Schäuble aims at far reaching reforms within the eurozone that would call for a new EU Treaty. The paper reports that the finance minister said in a confidential meeting of leading members of CDU’s and CSU’s parliamentary groups that further transfers of sovereignty in fiscal and economic policy where necessary. That is so “even if we know, how difficult treaty changes are”, he said, referring to referenda and difficult parliamentary votes. According to Bild, Schäuble’s plan also implies that there will be much further integration of the 17 euro states leaving opt-out countries such as the UK on the sidelines.

Mike Mish Shedlock writes Battle brews in Germany over Parliamentary approval of EFSF funding.  German taxpayer liability in the new ESFS proposal is €211 billion, nearly the national budget. And Merkel wants that at her disposal with no interference from parliament. Quite frankly it is nuts. Imagine Obama asking for a $1 trillion slush fund at his disposal to bail out other countries. The whole country would think he was mad. This whole mess seems like it is attached together with rubber-bands, paper clips, and Elmer's glue. I fail to see how it can possibly last.  And Mr. Shedlock writes Italy backs down on Austerity Measures; Bank of Italy warns tax hikes needed; German Central Bank complains EU Treaty "completely gutted"  In the wake of fresh sex and bribe scandals of Italian Prime Minister Silvio Berlusconi as well as Italy's backing down on austerity measures, interest rates are once again creeping back up on Italy.

3) … A global economic collapse and failure of moneyness is imminent … Under neoauthoritarianism, moneyness will come by the Diktat of a European Chancellor and his Banker … Fiscal Authority will be sacrificed and institutional holdings transferred to a troika of Brussels, Paris and Berlin to preserve the Eurozone.
The seigniorage of neoliberalism failed in May 2011 as is seen in the chart of World Stocks, ACWI relative to world government bonds, BWX.

Seigniorage, that is moneyness will not come from the EFSF Monetary Authority, there are just too many complications surrounding this Monetary Agency; and frankly its a super CDO; money cant be created by a non sovereign body out of sovereign country ever weakening capability.

Recapitalizations of banks, as called for by Christine Lagarde, at Jackson Hole, will not be forthcoming as these institutions are recognized as insolvent, and black holes of sovereign debt that cannot be repaid. Once banks are market decapitalized, they will be integrated into the government, that is nationalized. They will be known as Government Banks, or Gov Banks for short.

For the most part Austerity Measures are disdained and are painfully slow in coming; those which have come, are coming too little and to late. Failure of Austerity Measures will be inducing more foreshocks, that is birth pains of the Ten Toed Kingdom of Regional Economic Government, specifically regional European Economic Government.

The 1974 Clarion Call of the Club of Rome for regional economic government, is now effecting a bloodless EU coup de etat.  Mrs Merkel recently spoke with its Authoritarian Imperative, as Bloomberg reports Merkel rejects euro region breakup. And Handelsblatt reports Angela Merkel saying, “All times have their own specific demands.” The Chancellor is keenly attuned to the fact that the global economic, investment and political teutonic plates have shifted, as the Milton Friedman Free To Choose Floating Currency Regime ended when world stocks turned lower in May 2011, and when investors became aware that a debt union has formed in Europe, they fled the stock market on Black Thursday. Chancellor Merkel’s and President Sarkozy’s Joint Communique of August 2011, calling for “true European Economic Government”, reflects the political realty of regime change.  

Out of chaos, will come order: a Eurozone Economic Government will be formed, as national leaders waive national sovereignty, and announce regional framework agreements.

Moneyness will be coming from a European Fiscal Union and the word, will, and way of a European Chancellor and His European Banker. Debt burden will be falling on Germany, and it will insist on fiscal rules coming from a fiscal authority, that is a fiscal body with authoritarian powers. The fiscal authority of the periphery, that is the PIIGS, will be sacrificed, and institutional holdings, such as banks, utilities, and key industries, forfeited to a troika of Brussels, Paris and Berlin.

Neoliberalism featured wildcat finance, a Doug Noland term.  But Neoauthoritarianism features wildcat governance, where leaders bite, tear and rip one another, as the most fierce rise to the top, as governments created under Neolilberalism fail. In an interview with FAZ, French Foreign Minister Alain Juppé warned, “The dissolution of the eurozone is not acceptable, because it would also be the dissolution of Europe. If that happens, then everything is possible. Young people seem to believe that peace is guaranteed for all time. But if we look around in Europe there is new populism and nationalism. We cannot play with that.”  Under Neoliberalism, banks were coddled as an engine of growth. But now that the engines of deleveraging are decapitalizing bank capital, Neoauthoritarianism and its dog eat dog nature is underway. The Feds are now suing big banks over sales of risky investments, in order get control over banks so as to eventually integrate them into Government as part of the expansion of state corporatism. Tyler Durden of Zero Hedge reports TARPed, RETARPed, And Then DETARPed.

Next week could be the week that the house of cards could finally come unhinged. In what will be the event of the week, Germany's Constitutional Court is set to rule on the legality of the endless bailout pledges made by Angela Merkel. Yet, regardless of its decision, a regime shift has occurred, with the world passing through an inflection point in the May 2011 through August 2011 time frame, as the Beneficial Regime of Neoliberalism, envisioned by the liberal Milton Friedman has died. The Beast Regime of Neoauthoritarianism, based upon the thinking of authoritarians, such as Jean Claude Trichet and  Wolfgang Schäuble, is now operating as the world’s economic, investment and governmental system. A zealous, and fierce authoritarian is coming to rule as the President of the EU. This King will rule like the former Charlemagne, in a type of Revived Roman Empire. This One is most likely Herman Van Rompuy.  
The clay of Neoliberalism featured prosperity, and debt expansion, that came via leverage, freedom, and choice. But the iron of Neoauthoritarianism features austerity, and debt servitude, as de rigueur, coming from  deleveraging and diktat. Soon, we won’t be reading any more reports like the one by Rachael Dunadio of the NYT Italy’s Plans For Austerity Fall Apart.

As New York Times reports Sovereign debt worries flare again in Europe and OfTwoMinds editorializes When debt is fraud, debt forgiveness is the only remedy, I say the Sovereign and the Seignior will apply all the debt to all the people.  Yes the Sovereign and His Banker will apply all the debt, sovereign, banking, business, and personal, to every man woman and child, first in Europe and then globally.

4) … A Global Eurasia War is coming
Rick Gladstone of the NYT reports Turkey To Install US Designed Radar In A Move Seen As Blunting Iran’s Missiles.