World Enters Kondratieff Winter As US Stocks Join Global Stock, Commodity, And Currency Sell-Off On European Debt Worries … While Demand For Gold Remains Strong

Financial Market Report For May 23, 2011

1) … US Stocks, VTI, such as IWM, PSCI, PSCT, FLM, PNQI, PSCE joined the world sell off of stocks, VT, and ACWI as well as VSS and EWX.
Kirsten Donovan and Giuseppe Fonte of Reuters report financial markets piled pressure on peripheral euro zone countries on Monday as investors worried about heightened risks in Spain and Greece and fresh concerns over Italy.

A weekend wipe-out of Spain’s ruling Socialists in regional and municipal elections raised fears of potential clashes over deficit curbs between central and local government as Madrid fights to avoid having to seek a bailout like Greece, Ireland and Portugal.

Italy, which has the euro zone’s biggest debt pile in absolute terms, was hit by credit ratings agency Standard & Poor’s decision on Saturday to cut its outlook to “negative” from “stable.”
Government sources said Rome would bring forward to next month planned decrees to slice 35 to 40 billion euros off the budget deficit in 2013 and 2014, in an effort to reassure markets.

“We’ve kept things in order and the bases are all there for us to continue to do so,” Economy Minister Giulio Tremonti said.

The premiums charged by investors to hold Italian and Spanish 10-year bonds rather than safe-haven German bunds rose to their highest levels since January, at 186 and 261 basis points respectively.

The euro, FXE,  briefly fell below a key support level at $1.40, hitting a two-month low against the dollar, before stabilizing.

“The key point is that the crisis seems to be taking hold even of peripheral countries regarded as solid,” said WestLB rate strategist Michael Leister. “Sentiment is that there appears to be no end to it now Italy is being scrutinized by the ratings agencies.”

Stratospheric Greek debt yields rose still further — with 10-year bonds yielding more than 17 percent — amid uncertainty over a crucial 12 billion euro aid disbursement next month which is vital to meet 13.4 billion euros in funding needs, including debt redemptions, in mid-June and avoid default.

The Greek yields do not reflect Athens’ real borrowing costs because the country is surviving on IMF/EU loans and trading in Greek bonds is thin, but it is a barometer of market anxiety about some form of debt restructuring.

The Greek cabinet met to discuss new emergency deficit cutting measures to try to persuade international lenders to keep aid funds flowing, and convince investors the country can cope without a restructuring.

“We are in the middle of an ongoing battle. We will not surrender. We will do whatever it takes to make sure Greece stands on its own feet,” Prime Minister George Papandreou told voters last week, preparing them for still harsher austerity.

Visiting inspectors from the European Commission, the European Central Bank and the International Monetary Fund are withholding judgment on Greece’s compliance with its rescue program until they see progress on spending cuts, revenue increases and stalled privatizations.
Among planned new belt-tightening measures were deeper cuts in public sector wages, more consumer tax increases and even the taboo issue of dismissing full-time civil servants.

The chairman of the 17-nation Eurogroup of finance ministers of countries sharing the single currency, Jean-Claude Juncker, said on Saturday that Greece has fallen behind targets and should set up a trustee institution for privatizations.

Economic Policy Journal reports The Jam Greece Is In  Greece’s prime minister, George Papandreou, has now admitted for the first time that his country might not be able to raise money in the financial markets for its borrowing needs next year.

Papandreou said in an interview with the daily Ethnos that “it does not appear at present that Greece will be able to cover its borrowing requirements in 2012 normally, from the markets.”

As part of its euro110 billion bailout deal with the European Union and the International Monetary Fund, Greece was expected to raise euro27 billion to help pay its bills in 2012. Not likely.

And this leads to an even more immediate problem that could lead to default.

Financial Times reports The Greek government has paid just 1% of debt owed by public hospitals in 2011 and only 30% of payments owed since the start of last year. “The situation has become dramatic,” the Hellenic Association of Pharmaceutical Companies said in a letter to the Greek Ministry of Health. (Hat Tip to Between The Hedges)
 
The Italian OIl Company, ENI, E, and the Spanish OIl Company, Repsol, REP,

2) … Oil, USO, commodities, DJP, and base metals, DBB, turn lower on a stronger US Dollar, $USD, as gold, GLD, silver, SLV,  and agricultural commodities, JJA, remain strong as seen in the chart of  USO, DBB, GLD, SLV, JJA

Natural resource companies fell strongly.
Copper Miners, COPX,
Aluminum Producers, ALUM,
Coal Producers, KOL
Hard Asset Producers, HAP,
Energy Service, OIH, and IEZ
Junior Gold Miners, GDXJ
Gold Miners, GDX,
Silver Miners, SIL,

3) … The Telegraph asks What happens when Greece defaults

4) … Competitive currency devaluation picked up speed today and Chris Martenson relates Get ready for accelerating devaluation of all fiat currencies

5) … Economic Policy Journal reports Shanghai Index Falls Nearly 3 Percent and Bloomberg reports Chinese Manufacturing Index Drops to Lowest Level in 10 Months.   Chart of CAF.

6) … Shipping SEA fell strongly.

7) … MarketWatch reports  QE2 Was A Flash In The Pan.
Economic Data is Worse Than Before. It‘s cost $600 billion of your money. And it was supposed to rescue the economy. But has Ben Bernanke’s huge financial stimulus package, known as “Quantitative Easing 2,” actually worked as planned? QE2 is being wound down in the next few weeks. Fed Chairman Ben Bernanke has said it has left the economy “moving in the right direction.” But an analysis of the real numbers tells a very different story. Turns out the program has created maybe 700,000 full-time jobs — at a cost of around $850,000 each. House prices are lower than before QE2 was launched. Economic growth is slower. Inflation is higher.

The six month fall lower in Southern Peru Copper, China, China Small Caps, and Vietnam, evidences the failure of China to sustain world growth as well as documents the failure of state sponsored inflation controls and managed economies to maintain investor interest. SCCO, YAO, HAO,VNM

Oil, USO, DBC, BNO, and Base Metals, DBB, and Timber CUT, fell heavily on world currency, DBV, and emerging currency, CEW failure.  

Country ETFs falling lower today on debt debtdeflation, that is currency deflation, included the following
EWY,  -3.7
SKOR -4.5
EWA -3.2 and KROO, -3.7 
RSX, -3.0 and RSXJ, -3.6
IDX -2.6
EWG -2.5 and GERJ -2.3
NORW -2.7
EZA -3.1 The down turn in the gold mining intensive South Africa Shares epitomizes the failure of Neoliberalism’s seigniorage.
EWU -2.6
INDY -2.0 and SCIN -2.1
LATM -2.1
VGK -2.4
VNM, -3.1

EWZ 2-2 and BRF -2.1… O Globo reports The Brazilian economy is close to “overheating” and an increase in interest rates and “budget consolidation” are desirable, the International Monetary Fund’s Olivier Blanchard said. Brazil needs to be prepared for negative shocks, such as a drop in raw material prices, Blanchard said in an interview. The economist also said it’s reasonable to adopt certain measures to limit the appreciation of the real, such as reserve accumulation and capital controls. (Hat Tip To Between The Hedges)

Chart of Sweden, EWD; Sweden has been a competitive currency deflation loss leader and its sharply lower currency the Swiss Krona, FXS, has driven country shares lower,

8) … Are price controls and capital controls coming to China, YAO?  
China Securities Journal China’s negative real interest rates are prompting people to withdraw money from banks to invest in higher-yielding wealth management products, citing analysts. The trend may push the central bank to focus on pricing tools in adjusting monetary policy. (Hat Tip To Between The Hedges)

The Chinese Coal Mining Company which has been at the center of proposed price controls fell strongly. Yanzouh Coal Mining, YZC, is now turning lower, taking China Materials, CHIM, lower.

Chinese Small Caps And Technology leader,  Focus Media Holding, FMCN, is falling strongly lower

9)  … Zero Hedge reports As Spain’s Socialists Lose Local Elections, The Bond Vigilantes Stir.
Total Bonds, BND, rose manifesting a lollipop hanging man candlestick suggesting that Peak Credit was  achieved today.
Junk Bonds, JNK, fell lower and Leveraged Buyouts, PSP, fell strongly lower

Emerging Market Bonds, EMB, World Government Bonds, BWX, and International Corporate Bonds, PICB, documenting that the seigniorage of the world central banks has failed and that debt deflation, that is currency deflation is underway in bonds as well as stocks.  

Chart of Bonds, BND,

10) … The world’s leading banks fell strongly on the exhaustion of Quantitative Easing and the commencement of global competitive currency devaluation.
Australian Bank: Westpac Banking, WBK, -4.3, Emerging Market Financial, EFN, -3.8, Brazil Financials, BRAF, -2.8, China Financials, CHIX, -2.1, European Financials, EUFN,  -2.6, Banco de Chile, BCH, -2.5, Regional Banks, KRE -1.6

11) … Utilities, XLU, fell lower on a falling EURO, FXE and a topping out of bonds, BND.

12) … The S&P 500, SPY, breaks back below its 50-day moving average as a whole host of sectors fell strongly including
Semiconductors, XSD,
Steel,  SLX,
Retail, XRT,
Build and Construction, FLM,
Automobiles, CARZ
Wood and Paper Producers, WOOD
Manufactured Housing, CVCO

13) … Competitive currency devaluation coming as a result of the loss of Neoliberalism’s Seigniorage is seen in the cumulative loss of value of currencies since April 29, 2011 as is seen in the Finviz Screener of FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB, BZF, XRU, FXY, BNZ, DBV, CEW, CCX

FXS, -7.1
SZR, -6.6
XRU, -5.4
FXE, -5.2
BZF, -4.5
FXA, -4.3
FXB, -3.6
FXC, -3.3
FXF, -2.2
FXM, -2.2
BNZ, -2.1
ICN, -1.9

Tyler Durden reports Belarus Just Devalued Its Currency By 56%; Thank God, I don’t live there as  food, FUD, and cooking oil, FUE, would be out of my purchasing power.

The US Dollar, $USD, up at 76.16 today.

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