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Competitive Currency Devaluation Commences As Fears Of Greek Default And Greek Debt Contagion Arise And Neo Liberal Credit Exhausts

Financial Market Report for February 22, 2012

1) … Today competitive currency devaluation commenced as fears of Greek default and Greek debt contagion arose and neo liberal credit exhausted causing US Banks, Community Banks, Homebuilding, Steel, US Infrastructure, Biotechnology, Airlines, International Financials, India and REITS to trade lower.

The Yen, FXY, plummeted further as currency vigilantes punish the Bank of Japan for its recent monetization of debt which announced a monetary policy of asset purchases.

A trade lower in the British Pound Sterling, FXB, coming again from currency vigilantes effecting punishment for Bank of England monetary policy, forced UK area banks IRE, RBS, LYG, BCS, HBC lower. This is the beginning of the end for the City of London, one of the premier financial trading centers in the world.

Greek shares, GREK, and the National Bank Of Greece, NBG, fell lower on a likely soon coming default, turning European Financials, EUFN, World Financials, IXG, India Banks, HDB, IBN, EPI, South Korea Banks, WF, KB, Argentina Banks, GGAL, BMA, BBVA, BFR, US Banks, KRE, and US Community Banks, QABA, lower.

US Home Construction, ITB, traded lower on exhaustion of the safe haven rally in US Stocks.

Likewise US Infrastructure, PKB, traded lower as well on the exhaustion of the safe haven rally in US Stocks such as MHK, USG, FLR, JEC, MTW, TEX, SPX, NCS, BECN, TREX, NX, APOG, FBN, LOW, ETH, FBHS, PRIM, GLDD, SNX, CX, EXP, MLM,

Value stocks trading lower on the exhaustion of the safe haven rally in US Stocks include airlines, FAA, and RCL, MGM, SHFL.

Growth shares Steel, SLX, and Biotechnology, XBI, as well as Integrated Circuits, DIOD, Printed Circuit Board Manufacturers, BHE, Semiconductor Manufacturer, INTC, MU, trading lower on the failure of global growth due to the exhaustion of neo liberal finance.

India INP, INDY, India Infrastructure, INXX, India Small Caps, SCIF, Copper Producer, SLT on the failure of neo liberal finance, as did REITS, RWR.

Open Europe reports The scheme for private sector involvement will be launched today, with significant uncertainty surrounding the level of participation it will achieve. The Greek parliament is preparing to retroactively introduce collective action clauses to Greek bond over the next few days, which will allow Greece to force all bondholders into a restructuring if 66% agree to the deal.

Open Europe's Director Mats Persson wrote in the Telegraph on the second Greek bailout stating "New debt issued by the Greek government in 2014/2015 will essentially be junior to existing debt. This raises the question why private creditors would want to purchase Greek debt at all in three years' time, given that they would be first in line for any losses if Greece's economy goes down the tubes. Taken together with the tough austerity targets which could choke of any chance of recovery, as the [debt sustainability analysis] admitted, this may force Greece to seek another €50bn bailout after 2014," as investors will have little incentive to hold Greek bonds.

Fate is passing the baton of sovereignty from nation states to European leaders, such as Angela Merkel, and the EU ECB and IMF Troika. Nation states such as Greece are losing their fiscal sovereignty as sovereign leaders and sovereign bodies dictate monetary policy and fiscal policy. Bloomberg reports German Chancellor Angela Merkel indicated she will maintain pressure on Greece to meet debt- cutting pledges required for its second financial rescue, saying fiscal discipline is needed to hold the euro area together. "If you have a single currency you naturally have to be able to trust each other," she told members of her Christian Democratic Union party in Demmin, Germany, today. While "it is right" to bail out Greece, Portugal and Ireland, "we have to say again and again that everyone must do their homework because otherwise this Europe can't hold together." And FT reports EU Beefs Up Powers Over State Budgets. European Union finance ministers on Tuesday agreed on rules that will give the EU more powers to scrutinise eurozone countries' budgets, even before they are approved by national parliaments. The European Commission will be able to deploy its experts unilaterally to countries in need of bail-outs to give technical assistance, along the lines of the "task force" assisting the Greek government by overseeing the implementation of its EU-imposed reforms. The legislation comes on top of measures agreed last year that sought to enforce long-flouted debt and deficit rules put in place at the creation of the euro. They are intended to move the EU closer to a "fiscal union".

Open Europe relates Il Sole 24 Ore notes that with the second Greek bailout, "Europe enters into the heart of the state's supreme authority, showing that monetary and fiscal policies are now detached from the sphere of the nation's exclusive prerogatives." In Spanish business daily Expansión, Juan Castañeda wrote, "This European way out of the crisis in which national institutions democratically elected by citizens are gradually losing the effective ability to rule their countries …to the advantage of European institutions chosen by states will do nothing but distance even more the citizens from the so-called European project."

The FT reports Harsher terms leave a 'bitter taste in mouth' for bondholders. About 20-25% of Greek bonds are now in the hands of hedge funds, which may complicate the deal. It quoted a bond experts as saying that he expected to see an execution risk. The article said that even some banks may not participate given the rise in the net present value loss to 75%. The Greek CDS will now almost certainly be triggered by this deal. The attempt to avoid a CDS trigger was the original motivation to engage in a voluntary debt exchange deal.

2) ...Through soon coming competitive currency devaluation, as well as current oversupply and down trending demand, most commodity prices will be turning lower.
Commodities, DBC, USCI, blasted strongly yesterday, on news of the second Greek Bailout, Base Metals, DBB, rose with Aluminum, JJU, Nickel, JJN, Tin, JJT, Aluminum, JJU, and Copper, JJC, rising strongly. The always volatile Silver, SLV, rose, as did Gold, GLD. Oil, USO, broke out, and caused Gasoline, UGA, to rise. Timber, CUT, rose, which moved paper manufactuers, WOOD, higher.

The Great Deflation is imminent. As currencies begin to trade lower in competitive currency devaluation, Commodities, DBC, with the exception of gold, GLD, unleaded gas, UGA, and oil, USO, will trade lower again, led so by JJA, DBB, CUT, and SLV. This will be seen in the chart of DBC, JJA, DBB, CUT, SLV, GLD, USO

Bloomberg reports Record Nickel Supply Expanding Glut Thwarts Bull Market Rally. Commodities. Mining companies and refineries are producing more nickel than at any time in history, expanding a glut that threatens to reverse this year's rally. Production will exceed demand by 45,000 metric tons, a 73 percent jump from 2011, Barclays Capital estimates. That's equal to 46 percent of stockpiles tracked by the London Metal Exchange. Refined output will rise 12 percent, the most in at least eight years, according to Morgan Stanley. Prices, which rose 8 percent to $20,230 a ton this year, may fall as much as 13 percent to $17,630 a ton by Dec. 31, the median of 11 analyst estimates compiled by Bloomberg shows. With new supply expected from Australia to Madagascar to Brazil, consumption still won't expand fast enough to absorb the extra metal. Most markets for stainless steel, accounting for 76 percent of nickel demand, remain "depressed," Deutsche Bank AG said in a report Feb. 15. "We'll get more and more supply over the course of the year," said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. "We expect huge surpluses for nickel not only this year, but next year, and probably in 2014. It's mainly due to an increase in supply, but on the other side the stainless steel industry is facing a tough time

Currencies trading lower today include, The Japanese Yen, FXY, the British Pound Sterling, FXB, the South Korean Won, and the Argentine Peso. The currency demand curve, RZV:RZG, is turning over suggesting that competitive currency devaluation is going to commence soon, and this will delever commodity prices.

4) … The 10 30 US Sovereign Yield Curve is steepening suggesting that interest rates are headed higher and that a recession is coming.
Th Steepner ETF, STPP, has been rising and the Flattner ETF, FLAT, falling, as the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, has been rising since February 1, 2012. The interest rate on the US 10 Year Note, ^TNX, closed above 2% today, as The US 10 Year Notes, TLT, have fallen 2% over the last week, as is seen in this ongoing Yahoo Finance Chart of TLT, EDV, ZROZ and ^TNX

5) … Eventually there will come a time ...
There is no human action, rather fate is bringing forth all things. In a future credit devalued and financially broken world, there will come a time when the most credible leader will step onto Europe's stage and win the affirmation of Europe's leaders. This person will be the Sovereign, and he will be accompanied by Europe's Banker, The Seigniora, and together their word will and way will govern Europe, and the people will place their trust and confidence in them. One leading candidate for the Sovereign is Herman Van Rompuy and one leading candidate for the Seignior is Mario Draghi.

6) … In today's news
CNBC reports UK and Japan Warn Volcker Rule Poses Threat to Recovery. The UK and Japan have urged the U.S. to rewrite its so-called "Volcker rule", claiming that trading restrictions on U.S. banks could hit the international sovereign debt market at a delicate moment in the global recovery. George Osborne, the British chancellor, has joined forces with Jun Azumi, his Japanese counterpart, in warning in a column in today's Financial Times that the U.S. banking reforms could make it "more difficult, costlier and riskier for countries to issue and distribute debt", at a time when many eurozone countries are already under strain. The article is the highest profile expression of international concern about the impact of the U.S. reforms, coming from the finance ministers of two countries regarded as among Washington's greatest economic allies. (Hat Tip to Between The Hedges)

CNBC reports Huge Private Debts Pose Another Hurdle for Euro Zone. Away from the markets' fixation with the debts of Greece and other governments, concern is growing at the painfully slow progress Europe is making in tackling a much bigger mountain of corporate and household debt .(Hat Tip to Between The Hedges)