Financial Market Report for October 5, 2011
1) … Germany’s Iron Lady has spoken, Angela Merkel emphatically rejects a default by Greece.
Bloomberg reports Merkel Says Those Demanding Endgame to Europe’s Debt Crisis Have ‘No Clue’. German Chancellor Angela Merkel stiffened her resistance to joint euro-area bond sales, saying that investors yearning for a single gesture that can end Europe’s sovereign debt crisis now will be disappointed. The euro area has to resolve “that the time of living above our means is over once and for all” and pursue debt reduction that will stretch over “many years,” Merkel said in a speech to members of her Christian Democratic Union late yesterday in Magdeburg, eastern Germany. While stepping up her rejection of a Greek default, she said that issuance of shared debt by euro countries isn’t the solution to the problem spilling from Greece, even though some may long for the “big bang” to end the debt crisis. “Whoever believes that has no clue about the economy,” she said. Merkel stuck to her positions as she prepares for talks in Brussels today with European Commission President Jose Barroso before hosting French President Nicolas Sarkozy in Berlin on Oct. 9. The leaders of Europe’s two biggest economies will get together after the region’s finance ministers failed to quell market jitters that a second aid package for Greece aimed at stemming the crisis might unravel. A Greek default would have unpredictable consequences, lead to speculative attacks on other highly indebted euro countries and risk sending German economic growth into reverse, Merkel said. Letting Greece default would trigger “a gigantic loss of confidence” in euro-area sovereign bonds.
2) … Greeks strike to oppose the abrogation of their constitutional right to not be terminated from their state government jobs.
Bloomberg reports Greeks Strike Against Job Cuts As Aid Delayed. Hundreds of thousands of Greeks are walking off their jobs at airports, schools, hospitals and even the Acropolis to protest Prime Minister George Papandreou’s 6.6 billion-euro ($8.7 billion) austerity plan, challenging a government seeking European bailout funds to stave off default. Today’s 24-hour strike, the first this year that will shut the Athens International Airport for a full day, takes place after European Union ministers signaled they may renegotiate terms of Greece’s latest rescue, sending the nation’s stocks down the most in 17 months. The country’s largest public-sector union, known as ADEDY and representing at least 400,000 state workers, called the walkout and a march on parliament to protest plans to put 30,000 public workers on reduced pay, raise property taxes and cut pensions and wages. The demonstration defies calls by the government to show unity in the struggle to avert a default. “We are at the worst circumstances under the worst conditions,” Finance Minister Evangelos Venizelos said at a news conference in Athens yesterday. “We are dependent on the aid and loans of our institutional partners. That is the situation of the country. And we must make superhuman efforts to win this wager of history.” And Associate Press reports Strike By Greek Civil Servants Shuts Down Government.
3) … Dexia rescue moves bank crisis from Europe’s periphery to the core. Bloomberg reports Less than three months after Dexia SA (DEXB) got a clean bill of health in European Union stress tests, France and Belgium are considering a second bailout, moving the banking crisis from the continent’s periphery to its heartland. “We’re seeing a practical example of contagion playing out,” said Jean-Pierre Lambert, an analyst at Keefe Bruyette & Woods in London, referring to Dexia’s “material exposure” to the debt of countries on the EU’s rim. “Investors aren’t quite sure what the sovereign debt losses will be, nor where the share price should be. They are concerned about the risks and reduce their funding.” Dexia shares fell 22 percent yesterday, the most of any company in the 46-member Bloomberg Europe 500 Banks and Financial Services Index, even as the French and Belgian governments pledged to support the bank. The two countries, which bailed out Dexia in 2008, will take “all necessary measures” to protect clients and will guarantee all of Dexia’s loans, French Finance Minister Francois Baroin and Belgian Finance Minister Didier Reynders said in a statement yesterday. Yves Leterme, Belgium’s prime minister, said yesterday that a “bad bank” to hold Dexia’s troubled assets will be set up. The board of the Paris and Brussels-based municipal lender met Oct. 3 to discuss a breakup of the bank after the sovereign debt crisis reduced its ability to obtain funding, said three people with knowledge of the talks.
4) … On which side of the Atlantic will a banking and money market fund collapse occur first?
King World News Blog in article This Collapse is Bigger than Governments or CB’s (Central Banks) reports James Turk as saying, The only uncertain thing is: On which side of the Atlantic will a major bank collapse?
Moneyness under Neoliberalism, that is the Milton Friedman Free To Choose Floating Currency Regime, came via securitization of debt and carry trade investing and this produced prosperity for many. But now, Neoauthoritarianism, has arrived with the failure of the world central banks to provide seigniorage, as is seen in world government bonds, BWX, falling lower, and the failure of carry trade investing seen in the Optimized Carry ETN, ICI, falling lower.
Soon, the stock values of the European Financials, EUFN, will be worthless as investors flee from the European sovereign debt crisis. At that time, out of global financial collapse, a new seigniorage, that is a new moneyness, will come forth from the word, will and way of the European Sovereign, and his Banker, The Seignior. Diktat, not Liberty will carry Neoauthoritarianism’s moneyness, and the people will marvel, and be amazed and follow after it, giving their full allegiance to it.
I say fade any Milton Friedman hopes for being free to choose, and any Lew Rockwell Mises Institute longings of free enterprise, and any Dr Ron Paul Libertarian aspirations for liberty. Such things are mirages on the Neoauthoritarian Desert of the Real, as Neoauthoritarianism is rising to replace the Milton Friedman Free To Choose Floating Currency Regime. Diktat is replacing Choice. Sovereign Leaders and Bankers are replacing Sovereign Individuals. Fate is operating to install The Beast Regime of Authoritarian Rule and State Corporatism, to govern in all of mankind’s seven institutions and in its ten world regions.
Moneyness is synonymous with credit; and its about to go bye-bye. A credit collapse is imminent.. Yes, a credit evaporation is imminent. The global credit bubble and the global government finance bubble are going to pop. Doug Noland defines credit as trust, and Mike Mish Shedlock defines credit as a loan.
Steve Christ in Wealth Daily wrote in April 2009, “Mark to market has been shelved, at least temporarily. A vote this morning by the FASB relaxed the FASB 157 rule. In its wake, the markets have jumped to upside. The changes will now allow banks and other financial companies to use “significant” judgment when gauging the price of some investments on their books, including mortgage-backed securities. So, after being handcuffed by the rule, the banks are now free to sort of make it up as it suits them.The result, the skeptic in me now says, will be write ups instead of write downs as the financials use that “significant judgment” to significantly juice their numbers. That’s why the financials have bounced off the bottom with a vengeance, since these changes could boost their net income by 20 percent or more in the future.
Mr. Shedlock addresses both deflation and credit evaporation: “When the value of assets (loans) drop significantly, banks become capital impaired and cannot lend. This is happening now even though banks are hiding losses by not marking assets to market prices Policies of governments and central banks that bail out private banks are wrong because they place more burden on already over-extended and deep in debt taxpayers who are not equipped to take on more debt. The deflationary backdrop will persist until debt is written off, consumer deleveraging peaks, home prices fall to affordable values, and global structural imbalances fixed.”
I remark, the coming policy of governments world wide will be to enforce austerity measures; and debt servitude for all. Neoliberalism’s debt cannot be written off, it must be and will be applied to every man, woman and child on planet earth. Greeks are not Germans. And it’s now been proven that the Club Med State and the Industrious State cannot help one another in a currency union. Fate is operating, to bring forth a sovereign, that is a ruler, a New Charlemagne, who will rise to power in a type of Revived Roman Empire. Since the EU nations cannot speak with one voice to sovereign debt, the sovereign will speak to the Eurozone and for the Eurozone. And he will enforce debt servitude on all. A likely candidate for sovereign is Herman Van Rompuy, as the Daily Mail quotes him as saying the belief that countries can stand alone is a ‘lie and an illusion’.
I see the European banks being nationalized, and the emergence of a European Bank, possibly through enhancement of the ECB, a common EU Treasury, and a Fiscal Union, emerging through a credit and financial system collapse.
As Bloomberg reports, Germany’s Iron Lady has spoken, and has emphatically rejected a default by Greece. The Greeks are striking to oppose the abrogation of their constitutional right to not be terminated from their state government jobs.
It looks like, Greece will receive ongoing aid, and that there will not be a breakup of the Eurozone.
I see the Greek Prime Minister decreeing that to preserve the Euro, the right to not be terminated from state employment will be sacrificed. Further austerity measures will be imposed upon Greeks as part of their sacrifice for the greater European good.
Credit and lending come through diktat of the regional sovereigns and regional seigniors, that is regional bank overlords, and funding will be channeled through stakeholder committees to organizations which are key to the ongoing needs of the region.
The WSJ reports Canada’s Fin Min Says Greece Debt Needs To Be Reordered And indeed the debt will be reordered. The entire Eurozone will be reordered around regional framework agreements, where leaders meet in summits announce regional framework agreements which waive national sovereignty and effect a Eurozone coup d etat to institute a true regional economic government, as called for by the Angela Merkel and Nicolas Sarkozy August 2011 Joint Communique.
An inquiring mind asks, which will collapse first, the US Banks and money market funds, MMFs, traded by the ETFs, KBE, KRE and IAT, or the European Financials, EUFN. The Greek Banks such as the National Bank of Greece, NBG, are now capitally depleted.
Between The Hedges provides the Nong Thon Ngay Nay report that about 49,000 Vietnamese companies ceased operation in the January to September period due to a shortage of funds, citing Minister of Planning & Investment Bui Quang Vinh. The number of companies that have stopped operations or have dissolved rose 22% compared to a year earlier, the report said. Companies have been hurt by high borrowing costs exceeding 20% this year..
I am expecting a failure of money market funds and a failure of credit used by American small business. The Russell 2000 companies, that is the small cap companies, traded by IWM, are highly dependent upon lending to meet payroll, cut accounts payable checks and stock inventory. When the credit evaporation occurs, US small businesses are going to shutter.
Currently the Russell 2000, IWM, is trading at an all time high relative to the banks KRE, as is seen in the chart of IWM:KRE; but a dark cloud candlestick has formed in the chart indicating that a reversal is at hand: either banks are going up in value or the Russell 2000 are going down in value; I believe the latter is more likely. The Russell 2000, IWM, traded up to 65.68 today, any more rises represent a short selling opportunity.
Perhaps one might enjoy yesterdays article News reports reveal credit is evaporating and that banks are seen as becoming more shaky. The NYT reports Morgan Tries to Quell Rumors About Its Holdings Morgan Stanley executives are battling a daily barrage of speculation and nay-saying to try to stem a sharp slide in the company’s stock. Morgan Stanley, MS, traded up to 14.48 today.
For quite some time, I have consistently said that the best way to preserve wealth, is to buy and take possession of gold coins.
5) …Freddie Mac is an example of something between cronyism and regulatory capture.
The Atlantic in article House of Cronies: Is Freddie Mac Incompetent or Corrupt? relates that it’s becoming clear that Freddie Mac offered Bank of America a sweetheart deal in a case that suggests not only incompetence, but also something between cronyism and regulatory capture.
6) … Having been technically oversold China, Brazil, Australia, Austria, Germany, and Basic Material Shares took World Stock higher … Bonds turned lower … Timber, Silver and Oil, rose strongly on a risk trade … Gold rose on continuing sovereign debt fears.
Junk Bonds, JNK rose, but Bonds, BND, fell lower, being led so by Municipal Bond, MUB, and the longer duration Zeroes, ZROZ, the 30 Year US Treasury Bonds, EDV, TMF, and the 10 Year US Treasury Notes, TLT. The 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX is in an Elliott Wave 3 up, and is rising slightly above its 200 day moving average of 0.66, and the the Flattner ETF, FLAT, is now falling lower, and the Steepner ETF, STPP, is rising, meaning that interest rates are on the way.up.
Reflecting a risk trade, Oil, USO, Timber, CUT, and Silver, SLV, rose strongly.And Gold, GLD, rose on abiding sovereign debt fears.
The US Dollar, $USD, traded by UUP, turned lower. The risk trade was on today, taking the Yen, FXY, lower, and the world’s currencies, DBV, and emerging market currencies, CEW, higher: FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB, BNZ, all rose. Emerging Market Financials, EMFN, rose on the higher emerging market currencies, and the European Financials, EUFN, rose on the higher Euro. Emerging market bond, EMB, and world government bonds, BWX, rose on the higher currencies. Yet the chart of the world government bonds, BWX, stands on the edge of a massive head and shoulders pattern, suggesting a soon fall lower.
Country ETFs rising included: YAO, HAO, EWZ, EWA, BRF, EWO, EUFN, EWG, GXG, EPU, EWA, KROO, EWD, EWS, EWH. Stock ETFs rising included a large number of basic material material ETFs: GDX, GDXJ, SLX, WCAT, OIH, IEZ, ITB, CRBA, SOIL, PSCI, PSCT, CRBI, SLX, QTEC, TAN, FAA, ABCS, COPX, FPX, FONE, PNQI, IGN, KOL, XME, XHB, XSD, SIL, XHB, IYM CHIM, CHXX, CHII.
When one looks at the ratio of US Basic Materials relative to US Commodities, IYM:USCI, one sees that today’s rise is simply going to be a short term rally
Today’s strong rise simply reflects a rally in both a currency deflation bear market, and a rally in a credit deflation bear market, where the backdrop is one of quantitative easing exhaustion. The former regime of Neoliberalism was built upon rising currencies and credit, as a risk trade reflected in the Morgan Cyclicals Index, $CYC, rising in value. But the global tectonic plates have shifted as the economies have stopped growing, investors have become aware of debt union, and as politicians are calling for a true European economic government. The Age of Deleveraging is underway, an an authoritarian tsunami is about to destroy freedom and choice, and enforce debt servitude in the new Neoauthoritarian Regime. This Beast Regime will produce authoritarian rule and state corporatism in all of mankind’s seven institutions and ten world regions. In this Ten Toed Kingdom, ten kings will rule each of the ten geographical areas. Moneyness and credit will not come via debt but rather through diktat.
Rent based stock ETFs trading lower included IYR, REZ, REM.
Bloomberg reports Moodys follows S&P and downgrades Italy Bonds. The downgrade may aggravate a volatile political situation. Berlusconi, battling to keep his ruling coalition together, faces four trials and calls from Italian employers, his long- time backers, to step down after a decade of virtually no economic growth undermined debt reduction. Italy’s debt of about 120 percent of gross domestic product is second in the region only to Greece.
Der Spiegel reports The Euro Bomb. How A Good Idea Became A Tragedy. The Greek crisis has revealed why the euro is the world’s most dangerous currency. The euro was built on a foundation of debt and trickery, where economic principles were sacrificed to romantic political visions. The history of the common currency is the story of a good idea that turned into a tragedy of epic proportions.