Financial market report for Tuesday, January 24, 2012
1) … Angela Merkel is effectively the head of the Eurozone, paper says …. Larry Summers calls for yet more Government stimulus … Yen trades lower forcing Japan shares lower … Small cap value shares rise higher.
Euro Intelligence is the premier new service; this comes at a cost. I recommend that one subscribe to their daily news letter which reports that Angela Merkel is effectively the head of the Eurozone, and that Larry Summers calls for yet more government stimulus
Le Monde writes that now after France has lost its AAA status, Angela Merkel is now the effectively leader of Europe. The paper details the leaders who Angela Merkel has met and will meet in the days leading to the next crisis summit on January 30: Christine Lagarde, Herman Van Rompuy, José Manuel Barroso, Elio de Rupo, Swedish prime minister Fredrik Reinfeldt, the Austrian Chancellor Werner Faymann, the Portuguese prime minister Pedro Passos Coelho, the opening speech at Davos, a phone conversation with David Cameron and a meeting with the new Spanish prime minister Mariano Rajoy have been and will be on Merkel's agenda, Absent is Nicholas Sarkozy. Berlin is at the helm of European decision making. On this point Austen Sherman and Sara Eisen of Bloomberg report Greek Economy on Track to Implode, Hanke of Johns Hopkins Says. Whether or not Greece is able to reach an agreement on the restructuring of its debt, the country is set to "implode" as the economy contracts, according to Johns Hopkins University's Steve Hanke. "The game is completely over," Hanke, professor of applied economics, said at the Bloomberg Sovereign Debt Crisis Conference in New York hosted by Bloomberg Link. "All the calculations are nonsense and have been since day one. Since the crisis began the money supply has been shrinking and the economy is going to implode, no matter what they do in the short run." Money supply is shrinking at an annual rate of about 16 percent in Greece, meaning there won't be growth needed to support debt payments, Hanke said
In FT Larry Summers argues that we are in a similar situation as during the Great Depression, where only a strong fiscal stimulus can unleash a lasting economic recovery. He relates that interest rates are close to zero, that stock valuation and house prices are relatively cheap, and that companies are hoarding cash. This is a scenario, from which a strong recovery could emerge; but economic history tells us that this will only happen if governments follow the advice given by Keynes to President Roosevelt in the 1930s, which is expand demand, in another words through another fiscal stimulus.
I comment that more credit is not the answer. Excessive credit was the cause of the 1929 through 1932 depression. Currencies failed in July 2011, when investors feared that a debt union had formed in the EU, and now a credit bust is underway with bonds, BND, and US Treasuries, ZROZ, EDV, TLT, turning lower. US Federal Reserve monetary policies of credit liquidity, quantative easing, and the ECB LTRO facility, has made both money and credit bad. There is no money good. The only safe investment is personal possession of gold bullion.
The Yen, FXY, traded lower today, forcing Japan, EWJ, and Japan Small Shares, JSC, lower. Japan experienced ongoing debt deflation, that is currency deflation today; the reason being central bank credit policies world wide are debasing currencies and Japan is gong to experience less sales globally due to Euro zone debt contagion. The Telegraph reports Ageing Japan Faces Chronic Trade Deficit After Fukushima. Japan has racked up its first trade deficit in 31 years as the country's ageing crisis hits home and the Fukushima nuclear disaster raises dependence on imported fuel. Bloomberg reports Japan Exports Fall for Third Month as Global Demand Slows. Japan's exports fell for the third consecutive month in December, capping the first annual trade deficit in 31 years, figures underscoring the toll slower global growth and March's earthquake have taken on the economy. Shipments dropped 8 percent in December from a year earlier, the Ministry of Finance said today in Tokyo. In addition to the export slump, higher energy needs in the aftermath of the the nuclear accident in Fukushima increased energy imports, the report showed. A yen near postwar highs against the dollar is cutting into profits of exporters from Nippon Steel Corp. to Toyota Corp. by making Japanese products more expensive abroad, hampering the nation's rebound from March's temblor. The first annual trade deficit since 1980 shows how exports are weakening, robbing the economy of what has traditionally been its main driver of growth. "The decline in exports is directly related to slow GDP growth in Japan," Masayuki Kichikawa, chief economist at Merrill Lynch Japan Securities Co., said in Tokyo before the report. "The European crisis is reflected in weak demand from China, which directly affects the triangular trade relationship between Asia, Japan, and Europe."
Utilities, XLU, continues to trade lower. The rise in interest rates across the board, caused by bond vigilantes calling US Sovereign debt interest rates higher, as is seen in the Interest Rate on the US 10 Year Note, ^TNX , rising above 2%, has made these debt burdened companies less appealing.
Since the first of the year, Utilities, XLU, have fallen 4%, while Small Cap Pure Value, RZV, Home Builders, ITB, Design Build, PKB, Infrastructure, IGN, Agriculture, MOO, US Basic Materials, IYM, Wood Producers, WOOD, have rallied to current market tops, as is seen in the chart of XLU, RZV, ITB, PKB, IGN, MOO, IYM, WOOD.
The loss of debt sovereignty by the United States to the bond vigilantes, reflected in higher interest rates, is causing debt deflation, that is currency deflation, in the utilities. The monetary policies of the US Federal Reserve, which once proved stimulative, have now turned toxic. Excessive Neo liberal finance has made money bad. The seigniorage, that is the moneyness, of the US Federal Reserve is failing, with the result that disinvestment will be coming out of stocks, and deleveraging will come out of commodities, DBC, such as base metals, DBB, JJC, JJN, JJT, JJU, LD, agricultural commodities, JJA, COW, CORN, GRU, and Timber, CUT.
Debt deflation is likely to spread to other stock sectors, after the FOMC announcement, resulting in a complete stock market downturn, which will likely take the stocks that rose the most during the Eurozone debt contagion rally, quickly lower. I anticipate that in addition to the small cap pure value RZV, that Homebuilders, ITB, and all of the US Infrastructures stocks, Design Build, PKB, Networking IGN, Agriculture, MOO, US Basic Materials, IYM, Wood, WOOD, to be fast fallers.
The US Banks have been rising with seigniorage, that is moneyness, coming from the ECB's LTRO Facility, I expect KRE, RF, HCBK, FHN, STI, C, BAC, seen in this chart to be falling lower as well.
The S&P, SPY, is peaking out; and will be entering an Elliott Wave 3 of 3 of 3 Down. This wave is the most destructive of economic wave known to mankind, as it for all practical purposes destroys all wealth built on the previous five waves up.
Mankind will be utterly decimated by the collapse of fiat money that is coming with the exhaustion of the last forty years of credit liquidity and quantitative easing provided by the US Central Bank.
2) … Have we been at a market top before, that is, just like this current one?
Small cap pure value shares, RZV, rose on a synthetic carry trade, that is a rise in world currencies, DBV, relative to the Yen, FXY .... DBV:FXY; the candlestick appears massively bullish engulfing on the daily chart, but manifests as a lollipop hanging man candlestick on the weekly chart suggesting a completion of its rally; the carry traded funding for the rise in the small cap pure value shares appears to be complete.
I wrote on December 20, 1010 in article Investors Flock To Small Cap US Value Stocks As The Euro Falls Lower, Small cap shares rose to a new high; but this was not confirmed in the S&P, suggesting that the S&P has topped out. Small Cap Revenue Shares RWJ rose 0.7%. Small Cap Revenues Shares rising included Community Bank Sys, CBU, Synnex, SNX. The small cap value shares, RZV, rose 1.2% manifested three white soldiers, suggesting that a sharp stock market reversal is at hand. The S&P, SPY, closed up at 124.60 but short of its recent 12-16-2010 high of 124.82. Comstock Partners: The Market Is Overbought, Overextended And Overvalued. After an 86 percent gain in 21 months the market looks overbought, overextended and overvalued … And deja vu, the S&P, SPY, traded today at 131.61 in what is likely another market top. And the Euro, FXE, traded lower today, as stated above, Small Cap Value,RZV, rose on a synthetic carry trade, that is a rise in world currencies, DBV, relative to the Yen, FXY ....DBV:FXY.
3) … Networking, Agricultural, US Basic Materials, and Wood Producers, just like Pure Small Cap Value and Design And Build rally shares, rally to their doom.
Networking Infrastructure, IGN, Agriculture, MOO, US Basic Materials, IYM, Wood Producers, WOOD, have been rallying to their doom, just like pure small cap value, RZV, and design build, PKB, as part of the debt contagion US based stock rally, as is seen in the chart of SPY, RZV, PKB, IGN, MOO, IYM, WOOD.
The Networking Infrastructure companies seen in the chart of SPY, NTGR, AKAM, RHT, VMW, INAP, …....... and the Agricultural companies seen in the chart of SPY, AGCO, LNN, NC, CASC, … and the US Basic Material companies seen in the chart of SPY, AA, BTU, CLF, POT, ZINC, …...... and the Wood Production Companies seen in the chart of SPY, IP, DEL, WY, LPX, PCL, UFPI ….....
will be fast fallers in the soon coming downturn.
4) … Creative Destruction is underway as bonds and US Treasuries have traded lower.
The failure of credit, and the failure of moneyness coming from the failure of fiat money seen in world currencies, DBV, and emerging market currencies, CEW, turning lower in July 2011, and the failure of the seigniorage, that is the moneyness, of the US Central Bank monetary policies, means that creative destruction will stimulate a loss of stock value, and bring forth a ten toed kingdom of regional global governance, first as a Federal Europe, then in other regions such as North America.
Investopedia relates that Joseph Schumpeter fathered the term creative destruction. "A process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one". Econolib relates Schumpeter believed that capitalism would be destroyed by its successes, that it would spawn a large intellectual class that made its living by attacking the very bourgeois system of private property and freedom so necessary for the intellectual class's existence. And unlike Marx, Schumpeter did not relish the destruction of capitalism. "If a doctor predicts that his patient will die presently," he wrote, "this does not mean that he desires it."
Through the failure of credit, and the failure of US Federal Reserve Monetary Policies, a Schumpeterian depression will commence, and end the Pure Small Cap Value, Home Builder, Dividend, and US Infrastructure rally in Design Build, Networking, Agriculture, US Basic Material, and Wood Producing stocks. The world is embarking on something new, the emergence of regional global governance out of the death of capitalism, credit and fiat money. Loss of confidence in debt, and the loss of debt sovereignty by the US central bank, means an end to the Milton Friedman Free To Choose floating currency banker regime known as Neoliberalism, and confirms the death of capitalism. These will be replaced by the Beast regime known as Neoauthoritarian, and the ten toed kingdom of regional global governance, where the emphasis will be on regionalization, specifically regional trade, barter and use of regional currencies. The dynamos of corporate growth and investor prosperity, are being replaced by the dynamos of regional security and stability.
The development of regional blocs will mean private public partnerships, such as MIC, will rise in importance as regional stakeholders are appointed from business, banking and government to manage the factors of production and natural resources. The emphasis will be on un-dollar transactions, as the world's reserve currency falls into disrepute. Banks will be nationalized, perhaps better said regionalized, and come to be known as the government bank or the govbank for short. Regional blocs, that is regional unions already in existence include SCO in Asia, and CELAC, in South, Central, and Caribbean America; these will be increasingly dollar exclusion zones. A North America Union will form out of Canada, Mexico and the US, and might be called CanMexAmerica.
In as much as fiat money has failed, credit will be replaced by diktat. Bankers providing growth and prosperity, will be replaced by monetary cardinals providing regional security and stability. Under Neoliberalism, people trusted in bankers, who securitized ponzi credit. Under Neoauthoritarianism, people will place their their trust in sovereign leaders whose word, will, and way, will provide order out of chaos. The monetary cardinals will provide diktat as currency and also diktat as credit; and they will be responsible for managing regional infrastructure assets.
The seigniorage, that is the moneyness, of neo liberal finance, will be replaced by the seigniorage of diktat.
Perhaps the reality will settle in this week that Greece is bankrupt, and that when default occurs no one will trade with them, and they will have no seigniorage, that is moneyness, for fiscal spending. And that in order to prevent regional chaos, leaders must waive national sovereignty, and create a Federal Europe with the ECB or the Bundesbank chartered as Europe's Bank.
AFP Breitbart reports on the 2012 World Economic Forum And Global Leaders Summit in Davos relating Capitalism Is The Problem. Economic and political elites meeting this week at the Swiss resort of Davos will be asked to urgently find ways to reform a capitalist system that has been described as "outdated and crumbling." A major topic at Davos is The Future of Capitalism.
Simone Foxman of Business Insider reports Peter Westaway, Chief European Economist at Vanguard Asset Management, communicates we are likely to see a New Eurozone Economic Infrasturcture Policy. The immediate risk relates to Greece and the restructuring of its debt which if handled badly could lead to damaging contagion and in the worst case, fragmentation of the monetary union itself. More years of continuing fiscal consolidation and painful structural reform in the periphery will still be needed with all the attendant economic and political risks. By the time that period of adjustment is complete we are likely to see a new policy infrastructure up and running. Only then will the euro area be truly sustainable. At that point, we might be able to declare the euro area sovereign crisis over. (Hat Tip to Between The Hedges for this news item).
Moyers & Company relates David Stockman says, "We need not only a reinstitution of Glass-Steagal, but even a more serious limitation on banks - [a provision that says] if you're a bank and you want to have deposit insurance (which ultimately, you know, is backed up by the tax payer). if you're a bank and you want to have access to the so-called discount window of the Fed (the emergency lending), then you can't be in trading at all. … If they're too big to fail, they're too big to exist."
Creative destruction will combine the too big to fail with government to form a public private partnerships managing the factors of production and natural resources to establish true socialism.
Wikipedia relates true socialism is an economic system based on direct production of utility rather than on the capitalist laws of accumulation and value. Wikipedia also relates Immanuel Wallerstein, writing in 1979, maintained that "There are today no socialist systems in the world-economy any more than there are feudal systems because there is only one world-system. It is a world-economy and it is by definition capitalist in form. Socialism involves the creation of a new kind of world-system, neither a redistributive world-empire nor a capitalist world-economy but a socialist world-government. I don't see this projection as being in the least utopian but I also don't feel its institution is imminent. It will be the outcome of a long social struggle in forms that may be familiar and perhaps in very few forms, that will take place in all the areas of the world-economy."
The credit based fiat system is entering a debt deleveraging cycle. Out of a credit bust, creative destruction will bring forth a Federal Europe, and the ten toed kingdom of regional global governance.
Fate, not any human action, will bring forth many political events where leaders waive national sovereignty, and establish public private partnerships to provide regional security and stability. Default by Greece will be the catalyst for the formation of a One Euro Government and a Fiscal Union as well as a Eurozone Bank. Monetary cardinals will rule as regional economic stakeholders managing the factors of production as well as natural resources, such as refineries. Tyler Durden reports PetroPlus, Largest European Refiner By Capacity, Files Bankruptcy. Soon, a monetary cardinal will be assigned to oversee this refinery and other regional infrastructure assets. Deleveraging and disinvesting out of the credit based fiat system will produce a diktat based system of regional global governance.
5) … Notable quotes; here are some insightful currency comments from NowAndFutures
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final or total catastrophe of the currency system involved."
-- Ludwig von Mises
"Nations are not ruined by one act of violence, but quite often, gradually, and almost imperceptibly, by the depreciation of their currency, through excessive quantity".
-- Nicolas Copernicus, 1525
"The function of a ratings agency is to visit the field at the end of the battle and shoot the wounded."
-- John Heimann, Spring 1998 (former U.S. Comptroller of the Currency and later vice chairman of Merrill Lynch and chairman of the Financial Stability Forum)
6) … Will Angela Merkel pass the baton of European sovereignty to another, that is a more capable sovereign? Is Angela Merkel just a precursor, that is an antecedent, of one greater?
Fate is operating to replace all current economic, banking and political rule with authoritarian rule, as evidenced by the appointment of emergency financial managers in Michigan by Public Act 4, and by the appointment of technocratic governors in the EU's periphery. Fate is passing the baton of sovereign authority from nation states to the EU ECB and IMF Troika.
The Beast Regime of Neoauthoritarianism rising up out of the profligate Mediterranean Sea countries of Greece and Italy. This monster of statism has seven heads, symbolic of its occupation in mankind's seven institutions, and ten horns symbolic of its rule in the world's ten regions. It is being called forth by the 1974 Clarion Call of the Club of Rome for regional global governance, as a means of providing security and stability, in a world of chaos, that is coming from derisking and deleveraging out the Banker Regime of Neoliberalism.
Throughout history a series of kings and a progression of kingdoms to rule mankind. Freedom and Free Enterprise, the Libertarian dream, has come only recently and existed for a brief period, that is from the end of the Revolution War to the beginning of the Civil War. Fate appointed kings have included Nebuchadnezzar ruling Babylon; Cyrus and Cyrus and Darius ruling Merdo Persia; Charlemagne ruling Rome; Tony Blair ruling Great Britain, and George Bush, The Decider, ruling America with Unilateral Authority. And fate is pushing political and economic power out of the UK and the US, the two iron legs of global hegemony, into the hands of ten kings, who will eventually come to rule, each in his own regional power base. The regional blocs will be dollar exclusion zones, where un-dollar bartering and local currencies are used. Casey Research reports Tehran Pushes to Ditch the US Dollar. India and Iran are hammering out a deal to trade oil for gold.
With this distribution of power to regional blocks, we see the rising of the Ten Toed Kingdom of regional global governance, where rule in the ten toes will be mired in the clay of democracy and the iron of diktat. The coming EU Leader, will be one knowledgeable with the scheme of framework agreements. An inquiring mind asks, might this august leader be Herman Van Rompuy, or José Manuel Barroso, two of those Angela Merkel plans to meet with?
As credit instruments break down, not by any human action, but rather by fate, the curtains will open, and a most credible leader, The Sovereign, and his banking partner, The Seignior, will step onto the world's stage. In a credit exhausted and currency devalued world, the people will come to place their faith in the word, will, and way of these two; they will give their full allegiance to their diktat.
Eventually, the Sovereign will lord it over all other lords, whether they be in the UK or in the US, as he rises to rule the world in a one world government, and as his partner establishes a one world goverment, a establish a one world currency that provides global seigniorage.
7) … A Global Eurasia War is coming; it will be centered in both Syria and Iran as Russia and Russia will move into Syria to protect its economic trading interests.
Mahdi Darius Nazemroaya writes in GlobalResearch Obama's Secret Letter to Tehran: Is the War against Iran On Hold? "The Road to Tehran Goes through Damascus"
Mahdi Darius Nazemroaya writes in Global Research Confrontation Between Military Blocs The Eurasian Triple Alliance The Strategic Importance of Iran for Russia and China
Kareem Fahim of the NYT writes Syria Rejects Peace Effort From Region