Archive for July, 2011

Greek Debt Default Introduced Eurobonds And A Common Debt Agency, Papandreou Says

July 31, 2011

Financial market report for the week ending July 29, 2011

1) … The European Financials, EUFN, fall six percent lower on the week as the Greek Debt Default introduced Eurobonds and a common debt agency.
King World News reports Germany’s Fourth Reich has conquered Europe.

Open Europe reports Last week’s deal introduced Eurobonds and common debt agency, Papandreou says.
Greek Prime Minister George Papandreou yesterday told MPs from his PASOK party that, “The decision of our European partners to lend us at 3.5%, an interest rate just above the one at which Germany itself is borrowing, is in essence tantamount to introducing a European bond, regardless of the fact that this system has not been completed yet.” According to Euractiv, he added that the measures taken to bolster the EFSF bailout fund, which will allow it to purchase bonds on the secondary markets, mean that “in an embryonic form, a truly common debt management practice is beginning in the eurozone.”
His comments are unlikely to go down well in Germany and contradict those of Finance Minister Wolfgang Schäuble, who yesterday stressed that the Greek situation was a one off and that his government “rejects a ‘carte blanche’ for widespread purchases” of bonds. The lack of clarity about when and under what conditions the EFSF will be allowed to intervene in markets has continued to send Spanish and Italian borrowing costs upwards. “Greece will at least take a decade to become competitive again,” Schäuble added in an interview with the Passauer Neuen Presse. “There is no free pass for the use of the newly created instruments.”
The WSJ notes that IMF financing of the new Greek package “is not a done deal,” according to Paulo Nogueira Batista, Brazil’s representative on the IMF’s executive board. There are legitimate questions about whether the package is sufficient to lower Greece’s debt profile enough to make the country’s debt sustainable, he said. The FT notes that Germany is launching a complimentary initiative to encourage its businesses to invest in Greece, a move which has been met with resistance by German business leaders.
Meanwhile, in the latest downgrades to hit the eurozone, Standard & Poor’s has joined Moody’s and Fitch in saying that last week’s summit deal would put Greece in “selective default”. The IMF has warned that France will miss its target of cutting its budget deficit to 3% by 2013 unless it carries out more spending cuts and that French banks are also “significantly exposed” to peripheral area countries and remain less capitalised than their European peers.
Telegraph BBC Les Echos FT FT 2 FT 3 WSJ European Voice EUobserver FT 4 WSJ 2 EurActiv EurActiv 2 WSJ 3 IHT Liberation El Pais El Pais 2 El Pais 3 FTD 3 Zeit City AM City AM 2 City AM 3 Irish Times FAZ 2 Handelsblatt Irish Independent: Keenan WSJ: Heard on the Street Telegraph: Evans-Pritchard Times: King Le Monde Les Echos: Prandi Irish Independent: O’Callaghan PNP

Open Europe reports an editorial in the FT that looks at French President Nicolas Sarkozy’s call for a constitutional ‘golden rule’ to curb the budget deficit and notes, “Mr Sarkozy is playing politics with the balanced budget rule. Constitutional amendments that serve as fiscal straitjackets are not the answer. What France needs most of all are political leaders with the courage to tell voters that the nation must live within its means.

Open Europe reports David Cameron’s advisor proposes ignoring EU rules on temporary workers
An article in the FT reports that Steve Hilton, David Cameron’s strategy director, has proposed the abolition of maternity leave and all consumer rights legislation as a means to boosting Britain’s economic growth, both of which would come up against EU legislation. He also suggested that the UK ignore EU rules on temporary workers, due to enter into force in the UK in October. Meanwhile, in a letter to the Telegraph, Conservative MP Bill Cash argues, “50% of our business regulation comes from the EU. This is strangling our domestic growth and costs at least five per cent of GDP.” FT Telegraph: Letters

Other significant fallers of the week:  XBI -5.3, IWO, -5.2, IBB, -4.8, RZG, -4.6 IYT, -4.5, PEJ, -4.2%.

2) … In today’s seigniorage news
Yahoo News reports Bank trading slump to spark more job losses

Irvine Renter reports Lenders delay foreclosures to slow a worsening home-price double dip  In an effort to ease the saturation on the MLS, lenders have slowed the rate at which they are filing default notices and moving on foreclosures. The result is more shadow inventory, more delinquent mortgage squatting, and another delay for the hoped-for housing market recovery.  And he relates Lenders sporadically foreclose on large loans with second mortgages. Lenders have been concentrating shadow inventory in communities like Irvine with larger loan balances and numerous second mortgages. They foreclose only on rare occasions, and they do so in a capricious manner to combat strategic default and avoid large losses. And he asks Should the GSEs rent REO instead of selling at very low prices?  Real estate sellers that can’t get their asking price often consider renting the property and waiting for better days. Now even the federal government is considering holding some if its property purchased as REO through the GSEs. Is that a good idea?

Mike Mish Shedlock reports Vote of no confidence in Debt Plan Investors wasted not time in a vote of no confidence on the latest debt package supposed to save Europe. 10-year Spanish government bonds are back above 6% and yields on Italian government bonds are close behind. Yields on Portuguese and Irish debt fell, supposedly on the belief the latest debt deal will lower borrowing costs. It won’t. The S&P”s statement “some provisions of the EU’s rescue plan would help protect Ireland and Portugal” is laughable. There is no way the EU’s EFSF, the European Financial Stability Facility, can cover Spain, let alone Italy.

3) … In today’s financial news
As seen in this Yahoo Finance three month chart Exxon Mobil, XOM, continues to under perform peers.

Stockcharts.com chart of XOM

Banks involved with carry trade lending turned lower this week as the Yen, FXY, and the Swiss Frank, FXF, rose strongly.

KB

SMFG

FXY

FXF

Bonds, BND, rose, as the the Flattner ETF, FLAT, rose as the 10 30 yield curve flattened, and the 30 10 Leverage Curve steepened.

The Flattner ETF, FLAT

The 10 30 Yield Curve flattened

The 30 10 Leverage Curve steepened manifesting a massive dark cloud covering candlestick

All US Treasuries rose: The Zeroes, ZROZ, rose, the 30 Year US Government Bonds, EDV, rose, and the 10 Year US Government Notes, TLT, rose as the benchmark interest rate on the 10 Year US Note fell lower.

$TNX

Mortgage Backed Bonds, MBB, rose.

Longer duration corporate bonds, BLV, rose as did the shorter duration ones, LQD

Corporate Bonds, LQD

Emerging Market Bonds, EMB rose.

The 300% of the 20 Year Treasuries, TMF, was a slam dunk short selling opportuntiy.

Rising world currencies, and a supposed flight safe haven from falling stocks, have driven both international corporate bonds, PICB, and world stocks, BWX, to what is essentially new highs.

The U.S. dollar, $,USD slipped 0.4% this week to close at 74.0  Currencies rising this week included
the Swiss franc, FXF, 4.3%,
the Japanese yen, FXY, 2.3%,
the New Zealand dollar, BNZ, 1.7%,
the Australian dollar, FXA, 1.3%,
the South African rand, SZR, 1.2%,
the Swedish krona, FXS, 0.9%,
the British pound sterling,  0.8%, FXB,
the Norwegian krone, 0.7%,
the Russian ruble, XRU, 0.5%
the Indian rupe, ICN, 0.5%
the Singapore dollar, 0.4%,
the Danish krone, 0.3%,
the Euro, FXE, 0.3%,
the Chinese Yuan, CYB, 0.3%
the Brazilian real, BZF, 0.2%.  
Currencies declining  this week included
the Taiwanese dollar, 0.2%,
the South Korean won, 0.2%,
the Canadian dollar, FXC, 0.8%,
the Mexican peso, FXM, 0.8%.

Gold is both a commodity and a currency; it closed on the Comex at $1627.70, a new all-time high.

Peter Garnham of FT reports “Foreign exchange trading volumes in London have risen sharply to record levels.  The surge in activity in London came as turnover in New York and on electronic broking platforms remained relatively stable, suggesting that London banks were strengthening their hold on the world’s largest financial market.  Average daily turnover in traditional forex products in London rose to $2,000bn in April 2011.  That was up 25% from the $1,600bn daily volume reported in April 2010 and was driven by a 43% surge in daily spot forex volumes, which climbed from $642bn in April 2010 to $919bn.”

4) .. Political and economic regimes have fathers …. and powerful leaders as well.
The world passed through peak stock in July 2011, as world stocks, ACWI, entered an Elliott Wave 3 Down in April 2011.

  
Peak wealth finally turned lower as is is seen in today’s fall of Utilities, XLU, such as NEE, NI, and IDA, falling sharply lower.

The world is now passing through peak credit, as bonds, BND, are completing an Elliott Wave 5 up.

The world is now passing through peak currencies, as the world’s major currencies, DBV, and the emerging market currencies, CEW, topped out in April 2011. The chart of Small Cap Pure Value shares relative To Small Cap Pure Growth shares weekly, RZV:RZG Weekly, the currency yield curve, suggests that competitive currency deflation, that is competitive currency devaluation, will soon get underway.

Rising currencies have driven a number of country ETFs to historic highs; these include New Zealand, ENZL. Indonesia, IDX, and Thailand, THD. Soon these will no longer be safe haven investments; the only safe haven investment will be ownership and possession of gold bullion.

Whereas the neoliberalism was characterised by the spirit of Dr. Seuss’ The Cat In the Hat, neofeudalism is characterised by a Spirit of Wilding; it is a Beast System, a Beast Regime, occupying all of mankind’s seven institutions and ten regions. The Age of Wilding, which accompanies the Age of Deleveraging, is exemplified in the Associated Press report US review finds Iraq deadlier now than a year ago.

Doug Noland noted that neoliberalism is characterized by wildcat finance; I relate that neoauthoritarianism is characterized by wildcat governance where political parties are at sharp odds with each other, and the world’s ten regions in conflict with each other. Business Insider reports Hell is re-breaking loose in Europe, as Bailout Fund gets closer to blowing up and Business insider reports Germany accuses China of causing catastrophic starvation in Africa and OfTwoMinds reports The coming global instability. Also, NPR reports In Chicago, a test of wills over a budget deficit and EconomicPolicy Journal reports Chicago is an economic train wreck with Rahm Emanuel at the throttle.

Governance in America is characterized by Leadership Default. Associated Press reports the GOP controlled House and the Democrat controlled Senate remain at loggerheads over debt legislation required to avoid a first-ever default on U.S. financial obligations as lawmakers and the White House head into a pressure-packed weekend in search of compromise. The fundamentals of Leadership Default is that the Democrats want to eliminate war spending; the Republicans want to cap and shrink government social spending so that government can fit in a briefcase, specifically their briefcase; and the Tea Party wants to totally eliminate Federal government so that sovereign individuals can live in liberty.  Robert Wenzel of EconomicPolicy Journal relates Details of Federal Reserve meeting with Primary Dealers: “This is real inside baseball stuff It is important for those of trading the Treasury market. For the rest of you, move to the last paragraph and note that dealers are telling Treasury that they might be able to repo their MBS portfolio to raise cash. In a way, the repo of the MBS portfolio would be the start of the liquidation of the government. I’m all for it and government land and buildings should be next.”

The concept of sovereign individuals living in liberty is a delusion of the anarcho capitalist mind. The concept of choice is a dream of the neoliberal mind, as the prior age of prosperity has given way to the age of austerity; most assuredly liquidation of government is not coming, rather diktat is rising to rule mankind. Milton Friedman’s dream of Free To Choose will soon be a mirage in the Desert Of The Real.  2 Corinthians 5:17-18 presents there is no choice, as all things are of fate; all things are of destiny.  

I am practically alone in presenting the idea that a Global Economic Collapse is coming soon and that sovereign leaders will rule the world. I believe that a Chancellor, The Sovereign, Revelation 13:5-10, and a Banker, The Seignior, Revelation 13:11-18, will rule in Europe, and that President Obama will declare Martial Law and rule by Executive Order, and that a Triumvirate of North American Leaders will waive national sovereignty, and rule along the lines of the Security and Prosperity Partnership of North America, the SPP, that was announced at Baylor University by Bush, Marin, and Fox on March 23, 2005.  I see the 1974 Clarion Call of the Club of Rome, soon being fulfilled where ten regions economic governance are announced by Leaders’ Framework Agreement, with state leaders waiving national sovereignty. Emergency stakeholders appointed by government ministers and corporate leaders will oversee factors of production, and manage these for continental and regional security and prosperity, with state corporatism, that is statism, as the form of governance. Emergency management is exemplified by the Jerry White WSWS.org report Democratic mayor rolls out Detroit downsizing plan. “Detroit Mayor David Bing revealed further details Wednesday of his plan to shrink the city by forcing residents out of neighbor hoods deemed too poor or under populated.” Basic materials and natural gas providers such as TransCanada Corporation, TRP.TO, will expropriated. The North American Continent will become known as CanMexAmrica and governed as the North American Union.

Political and economic regimes have fathers and powerful leaders as well. Throughout history, powerful leaders have risen to rule mankind; the progression of five leaders is seen in the fulfillment of Nebuchadnezzar’s Dream of  Daniel 2:31-35 with the Statue of World Governments shown:
1) Nebuchadnezzar ruling Babylon; the Head of Gold.
2) Cyrus and Darius ruling Merdo Persia; the Chest and Arms of Silver.
3) Charlemagne ruling Rome; the Belly and Thighs of Bronze.
4) Tony Blair ruling Great Britain, and George Bush The Decider, ruling America with Unilateral Authority; the Two Feet of Iron And Clay.
5) And soon the European Chancellor, The Sovereign, and the European Banker, The Seignior, ruling the Eurozone, as other Authoritarians rule, in the other nine regions of the world; Ten Toes of iron and Clay.

Neoliberalism was the Free To Choose currency economic, investment, banking and cultural regime, that was great grand fathered by Milton Friedman, grand fathered by Alan Greenspan and fathered by Ben Bernanke.  

There has been a moneyness and governance tectonic plate shift. A global economic, investment, banking, and government tsunami is on the way, and will strike through the Debt Ceiling Leadership Default, as well as the Leaders Announcement of Greek Default.    

With the Leader’s Announcement of Greek Debt Default, on July 21 2011, and the subsequent stock market downturn of July 27, 2011, there has been a global sea change with humanity’s matrix, that is economic, political and investment regime which was changed by Leaders’ decree.

Neoliberalism fell to the diktat and deleveraging of neoauthoritarianism, whose great great grandfather was Adam Weishaupt, great grandfather was Leo Strauss, grandfather was Altiero Spinelli, and father is Nicholas Sarkozy of France, who insisted upon empowering the EFSF, as the Eurozone’s Monetary Fund, that is the European Treasury.  

Greeks cannot become Germans. There is a cultural divide, a chasm, as the Germans are nose to the grindstone, whereas the Greeks are Club Med. Germans are far right pursuing entrepreneurialship, while the Greeks are far left pursuing socialism.

Soon of Götterdämmerung, that is a clash of the gods, specifically the bond vigilantes and the government leaders, a global economic collapse is going to occur, as the head of mankind’s most important institution, being economic, investment, trade and banking will suffer a mortal wound, that is a stroke, Revelation 13:3.      

Out of chaos, a powerful leader will emerge in the Eurozone, This New Charlemagne, will establish a type of revived Roman Empire, that is a Federal and Fiscal Union, where fiscal authority will reside at the core with leadership coming from Germany and France, and not at the periphery, that is the PIIGS.  The Sovereign, will be accompanied by a banker, The Seignior, whose authority will come from regional framework agreements that waive national sovereignty. Former citizens of sovereign nation states will be residents living in a region of global governance, as called for repeatedly call for by Mr. Trichet, president of the ECB. All will be one, living as debt serfs, in debt servitude, under a One Euro Government.

The seigniorage, that is the moneyness, of neoauthoritarianism, will be quite different that that of neoliberalism.

The seigniorage of neoliberalism was based upon the securitization of debt by investment bankers, in particular the primary dealers of US Treasuries, the securitization of GSE Debt by mortgage REITS such as Annaly Capital Management, NLY, the marketing of junk bonds, JNK, and the US Federal Policies of credit liquidity, such as TARP, which traded out money good US Treasuries for distressed investments like those traded in Fidelity’s FAGIX, which in turn were place back with the Fed, and are being held as Excess Reserves. The seigniorage of neoauthoritarianism will be more political than economic, and come from two sources. First, Leader’s Frame work Agreements which establish monetary authorities, like the EFSF, and assign  stakeholders from government and industry to impose economic governance and austerity, ruling through state corporatism, that is statism. Secondly, seigniorage will come from the word, will and way of sovereign leaders, who will have waved national sovereignty and rule by diktat. The Leader’s Announcement of the the Security and Prosperity Partnership of North America, the SPP, of March 23, 2005, and the recent Bilateral Perimeter Security Talks, have effected a coup de etat in North America, and established a defacto North American Union, one of ten regions of global governance, called for the Club of Rome in 1974.    

The coming economic and political cataclysm will be such that the world’s people will long for the security provided by powerful leaders. The people will readily give their allegiance, and follow after regional economic governance, as well as the Sovereign and the Seignior as presented in Revelation 13:4.    

Neoauthoritarianism, manifesting as state corporatism, in all of mankind’s seven institutions, and ten regions, is the ultimate form of governance, and economy, for mankind, as held forth in Revelation 13:1-4.  It will be characterized by one region fighting politically, economically, and religiously with another. Eventually the Sovereign will make himself out to be God and demand to be worshiped.    

Suggested reading includes Doug Noland’s Prudent Bear article Money On Moneyness  Fed governor Bernanke concluded his November 2, 2002 speech commemorating Milton Friedman’s 90th birthday with the following:  “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we (the Federal Reserve) did it. We’re very sorry. But thanks to you, we won’t do it again.”

For more than twenty years now (commencing with aggressive monetary ease to recapitalize the banking system back in 1990), the prevailing objective of Federal Reserve policy has been to ensure that deflationary forces were not allowed to take root.  And while these deflation “panics” occurred only on those few occasions when market confidence in the U.S. Credit system waned, Fed alarm and associated policy responses were sufficient to convince the markets that the Fed held a singular top priority.  This “asymmetrical” policy bias has been instrumental in distorting the markets’ view of financial excess.  The Greenspan/Bernanke Federal Reserve communicated clearly to the markets that the Fed would not intervene to thwart asset Bubbles, but would instead focus on having aggressive “mopping up” measures ready in the event that faltering asset markets risked impacting the real economy.  In short, accommodatiive Fed policy incentivized speculation throughout Bubble periods – and the bigger the Bubbles inflated the more speculative profit potential available to financial operators seeking to profit from the government’s “mop up” reflationary measures.  And, as we’re witnessing both at home and abroad, the greater the scope of the bust the more confident the markets become that policymaking will factor potential market responses very importantly into all decisions.

We now have an almost three year “mopping up” experience to contemplate.  I’ve referred to this period as the “global government finance Bubble.”  Sovereigns have issued Trillions upon Trillions of debt, while global central bank balance sheets have inflated somewhere in the neighborhood of $5 Trillion (largely with holdings of government debt).  Moreover, governments around the world have both explicitly and implicitly guaranteed Trillions more of private-sector debt and various obligations.  The notion of “too big to fail” has evolved from a focus on major financial institutions to the system overall.

Here at home, the mortgage finance market has essentially been nationalized, with combined GSE and FHA obligations continuing to swell.  FDIC insurance obligations grow by the week.  Washington is assuming additional current and prospective healthcare expenses, and so on.  In Europe, debt failure at the “periphery” has added greatly to obligations now weighing on the “core.”  It is worth noting that Moody’s this morning addressed the additional cost of European debt bailouts as an important factor behind the deterioration in France’s Credit standing.

On the causes of the Great Depression, I side strongly with the “contemporaneous” view that economic cataclysm emanated primarily from a collapse of what evolved over years into an exceedingly fragile Credit structure.  This fragility was primarily the consequence of more than a decade of Credit excess, policy accommodation, reckless speculation, and an economic structure that over time had become dangerously distorted and imbalanced.  Similar critical issues haunt the global system today.

Major fissures are developing in the global government finance Bubble.  And, to be sure, so-called “mopping up” strategies have become pressing factors in an evolving crisis of confidence in sovereign debt.  In Europe, the markets are better appreciating the enormous, and unending, costs associated with bailouts of badly maligned “periphery” Credit systems and economies.  And, importantly, markets are seriously questioning the perception that eurozone politicians and central bankers retain the capacity to thwart any crisis that risks the stability of its euro currency.  The market distortion that allowed sovereigns from Greece to Italy to borrow at rates inconsistent with their underlying Credit standing has come to a rather abrupt end.  Moreover, the market’s reassessment – the repricing of sovereign debt to incorporate more reasonable risk premiums – is illuminating the severe structural debt and economic problems afflicting the region.

Here at home, the politics of dealing with massive deficit spending is illuminating the vulnerability of the market’s unflinching faith in our debt.  Similar to Europe, our nation’s debt problem has been festering for many years.  But unlike European policymakers, our policymakers have yet to confront debt market confidence issues.  In this respect, there is some truth to the notion that this is a self-imposed crisis.  On the other hand, Washington is doing its best to test both market perceptions and general complacency, an exercise I last week noted was “playing with fire.”

Debt crises tend to follow a common path:  the problem mounts over an extended period, with distorted markets doing an increasingly poor job of adjusting constructively to significantly heightened risk late in the cycle.  However, at some critical juncture the pressure becomes too much to bear.  Markets will likely react abruptly and, often, in dramatic fashion (think subprime, Greece or, more recently, Italy).

Today’s dismal Q2 GDP data and the Q1 downward revisions provide added confirmation that ongoing massive fiscal and monetary stimulus has had diminished economic impact.    I certainly see ample confirmation that economic issues are fundamentally structural, from my viewpoint ensuring that aggressive stimulus (and concomitant distortions) exerts only fleeting boosts.  Indeed, there is a strong argument that unprecedented “mopping up” has aggravated structural issues and only delayed economic reform. The Wall Street Journal’s Greg Ip penned an insightful article back in December 2005, “Lessons of the ‘30s”.  “Even as a child, Mr. Bernanke…was intrigued by the Depression.”  Mr. Ip conveys a story (recounted in a Bernanke textbook) where Bernanke’s grandmother explains to young Benjamin why “many neighborhood children had to go to school in tattered shoes or barefoot.”   When he inquired as to why parents didn’t buy new shoes, grandmother replied that they had lost their jobs when the (shoe) factory shut down.  When Ben asked why the factory had closes, she responded “because nobody had the money to buy shoes.”

The “revisionist” view is that the Fed was negligent in the 30’s for not ensuring there was sufficient money in the system.  The Fed should have created additional “money” both to recapitalize the banking system and to ensure that there was an ample supply of money available in the economy for consumers to buy shoes and things and for companies to invest.  OK. It sounds reasonable enough.

Yet the problem was not so much a lack of money supply as it was a lack of confidence in the entire monetary system.  And this gets right to the heart of my issue with “revisionist” analysis and current policymaking doctrine.  From my perspective, it seems rather obvious that the root cause of the Great Depression was the collapse of trust in system Credit along with faith in the broader financial apparatus.  And I have argued for going on three years now that the utmost (post-mortgage/Wall Street finance Bubble) policy priority should be to safeguard the creditworthiness of the core of our monetary system – government debt obligations in particular.  Above everything else, there must be bounds placed on stimulus measures (debt expansion and market intervention/manipulation) to protect the credit standing of our “money” system.  Policymakers have gone in an opposite direction, sparing no (current and future “public”) expense pursuing the top priority of supporting asset markets and stimulating economic recoveries.

Importantly, the dangerous flaw in this approach is becoming increasingly apparent.  First, tepid economic recoveries in Europe and the U.S. are demonstrating acute vulnerabilities – this despite unprecedented fiscal and monetary stimulus.  Second, “core” debt markets are showing the strains associated with a combination of persistent massive deficits and the assumption of more and more typically “non-core” obligations.   And whether is it U.S. deficit spending or European bailouts, the further policymakers proceed down the current path the less flexibility they will have to change course.

We are, indeed, witnessing the proverbial “throwing good ‘money’ after bad.”  Over the years I have harped on the importance of the notion of “moneyness of Credit.”  The past decade notwithstanding, “Moneyness” is a precious commodity.  If the market demonstrates great trust in a particular type of financial claim (say, perceptions of liquidity and a store of nominal value), this amounts to “moneyness.”  Why is this so important?  Because there will be basically insatiable market demand for additional issuance of these claims so long as the market perceives money-like qualities.  Throughout history, this special attribute has repeatedly led to over-issuance and attendant consequences.  This certainly played a fundamental role in the massive Bubble in (mostly “AAA”) mortgage-related securities.

“Moneyness” continues to play a profound role in the unfolding global government finance Bubble.  Markets have accommodated unprecedented issuance of sovereign debt, both on the assumption that this worldwide Credit boom would fuel economic recovery and that global central banks would ensure ongoing ample liquidity and low official interest rates (essentially placing a very elevated floor on sovereign debt prices).  The market assumption that massive U.S. stimulus – while good for GDP, corporate profits and stock prices – would pressure the dollar lower has been integral to the global reflationary boom.

The perception of ongoing dollar devaluation has been a critical factor for global sovereign “moneyness” (helping explain why negative U.S./dollar fundamentals have been generally viewed bullishly with respect to global risk markets).  

A weak greenback ensures the ongoing recycling of dollar liquidity by (primarily Chinese and Asian central banks) global central banks back to the Treasury market.  Ongoing dollar devaluation would also continue to entice huge speculative flows to “undollar” assets, including the emerging markets and commodities – fashioning an unusual degree of “moneyness” for securities issued by countries with unimpressive histories of monetary management.  And the worse things look for the dollar, the more the world’s new financial powers (accumulators of massive international reserves) would have vested interests in supporting the euro as a competitive store of value to dollars.

So, the markets’ hardened perceptions of “moneyness” owe a great deal to the notions 1) that the Fed will buy as many Treasurys as it deems necessary to sustain abundant market liquidity and support economic recovery; 2) that “developing” economy Credit systems will continue enjoying unprecedented flexibility and capacity; 3) that Asian central banks have too much invested to back away from dollar and Treasury market support; and 4) that China and others will bolster an increasingly fragile euro as a critical counterbalance to the dollar.  In sum, markets have viewed global central bankers as sharing a unified interest in sustaining the sovereign Credit boom.

I really worry when I see divergences between headstrong market perceptions of “moneyness” and a marked deterioration in the trend of underlying creditworthiness.  Such “gulfs” are the trappings of market dislocations and crises of confidence.  I believe this is especially the case currently.  Emboldened by past successes, market perceptions have been driven by unrealistic assumptions of the efficacy of government policy measures.   

Italian bond yields surged 47 bps this week, as market enthusiasm for Greek bailout II dissipated with an alarmingly short half-life.  Meanwhile, negotiations to avoid an August 2nd debt ceiling debacle became only a greater national embarrassment – and the Treasury market enjoyed another rally!

Perceptions of “moneyness” played a major role in nations attaining the capacity to accumulate unmanageable debt loads.  And it was not long after market perceptions began to normalize that periphery European sovereigns faced untenable situations.  As I’ve written recently, debt loads (from Greece to Italy) were manageable only so long as markets disregarded (mounting) underlying Credit risk.  Today, the markets are content to perceive perpetual “moneyness” in Treasury debt.  And this guarantees that an insidious impairment to underlying creditworthiness runs unabated.  Yes, the Fed has thus far succeeded in ensuring that the system remains flush with “money.” Meanwhile, a dysfunctional market pricing mechanisms ensures that these debt obligations continue to be over-issued in ridiculous quantities.  It will be an interesting weekend in Washington.

World Enters The Era Of Neoauthoritarianism On The Failure Of The Seigniorage Of Neoliberalism, Inflation Destruction And Exhaustion Of Quantitative Easing With Demand Exhaustion Manifesting

July 27, 2011

Financial market report for July 27, 2011

1) … Its taken four months, but finally stocks fell lower lower fully entering an Elliott Wave 3 Down, on the failure of the seigniorage of neoliberalism, inflation destruction, and exhaustion of Quantitative Easing, particularly demand exhaustion.
The world has experienced the dusk of neoliberalism since April 2011, but today, July 27, 2011, the world has fully entered into the darkness of neoauthoritarianism, with leadership default being exemplified in Washington, with competing plans for deficit reduction presented by Democrats, who see cuts coming from reductions in the war on terror, and Republicans proposing social cuts, and the Heritage Foundation and Tea Party defying all.  An acquiring mind asks, will the President declare martial law and rule by executive order? Doug Noland communicated that neoliberalism was characterized by wild cat finance, neoauthoritarianism is characterized by wild cat governance.  The world has passed from prosperity that has come with the Age of Leverage and into debt servitude and austerity with the Age of Deleveraging. Neoliberalism featured democracy, but neoauthoritarianism features diktat of sovereign leaders who rule in regional framework agreements, waiving national sovereignty and effecting regional economic governance. In the Eurozone a debt union has formed with the declaration of the EFSF Monetary Authority to serve as a European Monetary Fund, a Eurozone Treasury, at the insistence of President Sarkozy, but long opposed by Germans. Soon Eurocrats will declare emergency fiscal rules transferring fiscal authority to a federal and fiscal union and out of the hands of states as they loose their debt sovereignty to bond vigilantes.  Seigniorage, that is moneyness, will be mostly political, coming from the word will and way of the leaders.  Out of a global economic collapse, where the head of mankind’s most important institution, that is finance, commerce, trade, banking and investment, suffers a massive head wound, a stroke, a cunning Chancellor, the Sovereign, and his partner, an adept Banker, the Seignior, will rise to power in Europe, and rule much like Charlemagne, and rule in a type of revived Roman Empire.  Neoliberalism featured the floating currency policies of Milton Friedman and credit liquidity policies of the US Federal Reserve which produce fiat wealth, that is plastic seigniorage, that is moneyness, securitized by firms like Annaly Capital Management, NLY, and effected by firms like Cardtronics, CARD, and Discover Financial Services, DFS, and American Express, AXP. Last week’s Leaders’ Announcement of Debt Default of Greek Sovereign Debt effected a bloodless Eurozone wide political, banking, economic, and governmental coup d etat where the Leaders are now sovereign over the people living in the European Union; one is no longer living in a sovereign nation state, but rather in a region of global governance as called for by the Club of Rome in 1974. Whereas neoliberalism is likened unto an Anaconda slithering across the jungle floor, neoauthoritarianism is a beast system, that is a beast regime, of state corporatism occupying in ten regions of global government and ruling in mankind’s seven institutions.  
 
It was a slaughter house on Wall Street today; stocks falling lower included:
EUFN -4.3%
IGN
GDX -3.0%
XSD
SIL
FAA
PXN
JKH
IWO -3.2%
GDXJ -4.3%
XBI
XPH
SKYY -3.6%
XSD -3.7%
XME
IGV
RZG -3.1%
RZV
PSCT -3.7%
IBB
IGV -3.5%
FLM
FIW
PSCD -3.4%
PSCC
COPX
XRT
RWJ
PSCE
IEZ
OIH
FONE
PSP
XLE
IHF
AMJ
KOL
FRI
PEJ
IYR -2.7%

DIA
SPY
IWM -3.0%
QTEC
IYT -2.5%
IYJ -2.8%

The world entered Kondratieff Winter as international stocks falling lower included
ACWI -2.0%
VSS -1.9%
EWL
LATM -3.9%
VGK
BRF
EWZ
EWI -4.5%
EWG
EWP -4.0%
EWD
NORW
EWO
EEB -1.9%
EEM -1.8%
Indonesia, IDX, manifested a spinning top, gaining 0.03%

The rapid decline in the closed end preferred stock fund F&C Claymore Preferred Securities Income Fund, FFC, is one of many indications of the failure of the seigniorage of neolilberalism.

2) … The US Dollar, $USD, traded by UUP, traded up slightly higher today from yesterday’s 73.50
The world currencies, DBV, emerging market currencies, CEW, commodity currencies, CCX,  FXE, FXM, FXC, ,FXB, FXS, FXF, BZF, XRU, SZR, FXY, BNZ, traded lower, with the exception of FXA, ICN, and CYB.

3) … Commodities falling lower included oil and timber
USO - 2.2% Associated Press reports Oil falls as nation’s crude supplies rise
CUT – 2.8%

4) … Junk Bonds, JNK, turned Bonds, BND, lower today.

5) … In today’s news
Open Europe reports German Finance Minister: Bailed-out countries should give up part of their sovereignty to the EU
In an interview with Stern, German Finance Minister Wolfgang Schäuble suggested that any country that receives a bailout must give up some sovereignty, saying, “A state with problems, that receives help, must be willing to give some of its sovereign rights to the EU.” According to a letter seen by Reuters, Schäuble also suggested that the German government would not support a carte blanche for bond purchases via the eurozone’s temporary bailout fund, the EFSF. His comments will add to investors’ growing scepticism over the speed and scale at which the EFSF can purchase government bonds, since it requires unanimous consent of eurozone members and the ECB. Schäuble’s comments also appear to have caused Spanish and Italian borrowing costs to rise this morning.
Meanwhile, the WSJ reports that leading Portuguese banks are pushing for changes to the aid they receive under the Portuguese bailout. They suggest that the €12bn currently earmarked for bank recapitalisation should be used by the state to repay its debt with the domestic banking sector, which would make it easier for banks to increase lending in the wider economy and therefore promote economic growth.
Head of the IMF, Christine Lagarde, has suggested that the IMF may need to increase its financial resources again to ensure it can deal with financial crises around the world, saying, “Maybe [the IMF] could do with more [financial resources]. In the not-too-distant future, we will probably have to revisit this issue.” Despite having a resource base of $1.5tr the IMF can only lend up to $396bn in the next year, given existing loans and delays in countries providing their cash quotas. Separately, Moody’s has downgraded Cyprus this morning to just above junk status, citing its exposure to the Greek crisis as part of the reason. Stern: Schäuble Reuters Reuters 2 Reuters Italia Dow Jones WSJ WSJ 2 Guardian WSJ 3 Independent FT FT 2 El Pais Le Monde ORF IHT Liberation Handelsblatt Euractiv SZ AFP

EuroIntellilgence in their for fee newsletter reports the latest Markit purchasing managers index points towards a sharply slowdown in the eurozone economy. “Frankfurter Allgemeine writes that the outlook for the eurozone economy has deteriorated significantly in the last few months. Citing the latest Markit purchasing managers index, the mood among purchasing managers has dropped sharply, with the balance only just above the growth line of 50. The problem is that Germany and France, which sustained the above average eurozone rates, recently have both weakened considerably. The paper, however, disputes Markit’s assessment that the German recovery was fragile, noting that various German indicators, including the Ifo index, show that the economy is still expanding strongly.” And EuroIntellilgence reports that Alan Beattie, in FT says the eurozone’s model of political governance is not suited for the handling of debt crises. “This is an interesting column by Alan Beattie in the Financial Times, comparing the European and US twin crises. In his comment, he makes the observations that the EU’s model of governance had served it well over the years, but the iterative consensus-driven approach is unsuitable to the management of currencies or debt crises. He said the issue had become so complicated that the most senior US officials only managed to keep with developments through the press. While Washington is better at solving debt and banking crises, there are similar governance problems as we can now see in the standoff about the debt crisis, which must be settled by August 2.”

Bloomberg reports Italian, Spanish Bonds Slump on Concern European Aid May Not Be Sufficient. Italian and Spanish government bonds declined, increasing the yield relative to benchmark German bunds, on speculation Europe’s aid package may not be sufficient to prevent contagion. German bonds rose for a fourth day and European bank stocks slid as Finance Minister Wolfgang Schaeuble said the government is against a “blank check” for the European Financial Stability Facility to buy bonds of troubled euro members in the secondary market. “If you look into the details of the EU summit decision, it doesn’t take you long to get to where the weak points are,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “You still have two countries that are too big to save and are not effectively protected from negative market sentiment.” Italian 10-year bonds yields rose 14 basis points to 5.76 percent as of 4:12 p.m. in London. The difference in yield between Italian and Spanish bonds and their German counterparts widened. The Italian 10-year security yielded 311 basis points more than similar-maturity bunds, up from 289 basis points yesterday, while the Spanish- German spread rose to 334 basis points from 322. The cost of insuring against default on Italian government debt rose 16 basis points to 291 and Spain increased 14 to 337, according to CMA prices for credit- default swaps. “The mandate of the EFSF has been extended but the size hasn’t been increased accordingly,” said Daheim. “You get the impression that there are too many things the EFSF is supposed to be doing. The weak points justify spreads between Spain and Italy and bunds not having narrowed more since the summit.” The risk of bank writedowns and more contagion from the debt crisis helped to drag the Stoxx 600 Banks Index down 1.8 percent, led by Italian lenders. UniCredit SpA slid 3.9 percent while Intesa Sanpaolo SpA dropped 4.2 percent.

Reuters reports, Italy Assets Close Sharply Lower on Contagion Fears. Italian assets fell strongly on Wednesday on renewed fears of euro crisis contagion, with shares in leading banks down more than 4 percent and benchmark bond yields sharply higher. Milan’s bank-heavy FTSE MIB share index closed down 2.81 percent. The drop came as the yield premium on 10-year Italian BTP bonds over German Bunds widened to 313 basis points from 290 basis points on Thursday on worries that the euro zone crisis could widen to Italy. The 10-year BTP fell almost a full point in price, pushing its yield up to 5.76 percent. That is not far from the 6 percent psychological threshold it broke this month for the first time since 1997. Italy borrowing costs are expected to soar on Thursday when it sells up to 8.5 billion euros of bonds. Jitters about its debt pile are seen pushing the yield on the 10-year bond to an 11-year high

Bloomberg reports Kandahar Mayor Is Killed in Suicide Bombing While Mediating Land Dispute. The mayor of the southern Afghan city of Kandahar was killed in a suicide bombing at his office today, two weeks after the region’s most powerful politician, President Hamid Karzai’s half brother, was assassinated

Bloomberg reports Palestinians Say Time Is Right for Statehood. Palestinians have made a “final decision” to pursue the first formal step toward recognition of statehood and United Nations membership in September, the Palestinian Authority’s envoy to the world body said today. Ambassador Riyad Mansour announced a “march to legislation” at the UN, saying his government “can’t wait any longer for the government of Israel to negotiate with us in good faith.” The initial move will come at the opening of the UN General Assembly in New York in late September, he said. The Palestinian decision defies pressure from the Obama administration, which has said the move will undercut efforts to restart direct Israeli-Palestinian talks, and jeopardizes U.S. aid to the Palestinian Authority. The Senate on June 28 passed by unanimous consent a resolution with 89 co-sponsors that calls for President Barack Obama to consider “restrictions on aid” if the Palestinians proceed at the UN. An inquiring mind asks, will the UN recognise Jerusalem, specifically East Jerusalem, as the capitol of the Palestinian People, if so, will not Israel object, as it has asserted that Jerusalem will never be divided. Israel’s authorities maintain Jerusalem is their eternal undivided capital.     

America’s hopes for a second-half pickup in the U.S. economy dimmed today as companies warned of weakening demand for everything from industrial equipment to televisions and Bloomberg reports Orders for U.S. durable goods fell in June and the Associated Press reports Fed survey: Growth slows across much of the US,

Now With The Turning Lower Of The Defensive And Seigniorage Stocks, The World Is Passing From The Dusk Of Neoliberalism Into The Night Of Neoauthoritarianism

July 26, 2011

Financial Report for July 26, 2011  

1) … In today’s financial news

Open Europe questions Summit side effects: Beginning of the end for CDS? and Doug Noland relates More on sovereign debt crises  

Open Europe reports on the catastrophe of Greek socialism In the FT, Gideon Rachman notes, “The EU has contributed to Greece’s something-for-nothing culture by pouring money into the country over the past 30 years. Greece has benefited from billions of euros of grants for agriculture and infrastructure. That money was channelled through government ministries, controlled by political parties that used European funds as a form of patronage. And yet, as part of an effort to restore growth to the Greek economy, the EU has just agreed to hand over another €17bn in new grants (not loans) to Greece. It is hardly surprising that northern European taxpayers feel upset about this.”
In Die Zeit Editor Josef Joffe argues that “what is most worrying is the legitimacy crisis of Europe. One can blame Merkel, as she does not live up to her role as the leader of the wealthiest and most powerful EU member state.” At the same time, Handelsblatt argues that Germany’s role in Europe has already gone too far: “While the Germans used to be the mild giant of the EU, they are now the ones who dictate harsh reforms on weaker countries. That cost them both sympathies and assertiveness…The constant progress of the EU, where every crisis was a step to further integration is out. People just don’t want more Europe.”
FT: Rachman FT: Jenkins IHT: Dempsey Le Monde: de Menthon El País: Carnero El País  Publico.pt  Zeit Handelsblatt  BBC: Peston

Open Europe reports Italian and Spanish borrowing costs back on the rise. Market fears over the long term health of the eurozone returned yesterday, despite a brief respite following the second Greek bailout, reports the WSJ. Spanish ten year borrowing costs breached 6% again, while Italy’s topped 5.5%, levels seen as close to unsustainable for both economies in the long run. The FT reports that full details on private sector involvement in the second Greek bailout are not expected until the end of August.
Meanwhile, the WSJ Real Time Brussels blog notes that the Greek bailout package may actually increase Greek debt this year, since Greece must borrow the money to purchase collateral for the private sector involvement before it can reap any of the rewards from the bond swap or rollover. Belgium held a successful bond auction yesterday selling €2.5bn at only slightly higher interest rates than in May, quelling fears that it could be dragged into the eurozone crisis.
WSJ FT Les Echos CityAM EUobserver El Pais Jornal de Negocios El Pais 2 Telegraph WSJ 2 WSJ 3 WSJ 4 IHT WSJ: Real Time Brussels FTD Handelsblatt

Bloomberg reports FHA May Be Next in Line for Bailout. The nationwide decline in house prices has created a vacuum in the U.S. mortgage market. Private financing for home loans has all but dried up and the U.S. government is now guaranteeing almost every new mortgage. Fannie Mae and Freddie Mac have received most of the media’s attention, but policy makers need to focus on the third leg of the housing- support stool: the Federal Housing Administration. The FHA has some major accounting problems. Left unaddressed, they could spook the markets, lead the FHA to seek a federal cash infusion and further enrage taxpayers. These outcomes can be avoided — but only if policy makers are more transparent about the risks involved in guaranteeing mortgages. As private-financing options have disappeared, the role of the FHA has grown. Its market share has increased to about 30 percent today from 3-4 percent in 2007. That’s because the agency is now practically the only game in town, accepting borrowers with down payments of as low as 3.5 percent. As the last few years have made clear, sizable down payments — or “skin in the game” — are the key to avoiding defaults in the near term and to achieving a stable housing market in the long term (Hat Tip to Between The Hedges)

Bloomberg reports China’s Stocks May Extend Worst Drop in 6 Months, UBS Says. China’s benchmark stock index may extend the biggest drop in six months and sink below this year’s low as slowing economic growth spurs analysts to reduce their earnings estimates by as much as 46 percent, according to UBS AG. A high-speed train crash may hurt profit growth for the nation’s two biggest train makers, said Chen Li, Shanghai-based head of China equity strategy at UBS. Analysts may cut their 2011 earnings growth forecasts for non-financial companies to as low as 15 percent from the current 28 percent, he said. The Chinese central bank is unlikely to ease its tighter monetary policies and may keep on raising interest rates to tame inflation that reached a three-year high last month, Chen said. “Investors’ expectations that tightening policies will be relaxed have been completely dashed after the government reiterated that current policies will remain in place,” Chen said in a telephone interview yesterday. The direction of economic controls shouldn’t change in the second half and will focus on curbing rapid price gains, China Central Television reported July 22, citing Premier Wen Jiabao. (Hat Tip to Between The Hedges)

2) … In today’s sovereignty news:
Zoe Fraley of the Bellingham Herald reports that Governor Gregoire Washington’s governor addressed Bellingham City Club about the past legislative session and addressed a subject that has been the source of recent debate in Bellingham, that being the SSA Marine Gateway Pacific Coal Terminal in Whatcom County’s coastline. Club members packed the Hotel Bellwether ballroom to hear Gregoire speak at the group’s July meeting. She talked about how the state has made some painful cuts to its budget in the face of deficits, and the importance of small businesses and the education system. She also talked about the expansion of Washington state’s green-energy industry, with wind and solar power on the rise.

When she finished and allowed audience questions, the first was about the SSA Marine Gateway Pacific project, which would include a deep water cargo terminal at Cherry Point. “I’m shocked you have any questions on this subject,” she joked. The audience responded with laughter. The other audience questions also were about the terminal, a subject that has been the source of much debate in Bellingham. “Let there be no mistake, Wyoming and Montana are going to extract their coal and they’re going to export it,” she said. “The question is, does it go through Canada or does it go through Washington?” Gregoire said it’s going to take a lot of work and study before she forms an opinion on the project.

Open Europe reports Conservatives and Labour are both rethinking their stance on the EU. Rachael Sylvester In Times notes that, “The Prime Minister and the Chancellor have started to discuss the possibility of repatriating some powers from Brussels. A group of Conservative backbenchers, led by George Eustice, the Prime Minister’s former press secretary, has been given the nod, tacitly, by No 10, to draw up a list of areas that would be a priority for renegotiation.” She adds that, “The Labour Party under Ed Miliband is, meanwhile, taking an increasingly Eurosceptic stance…He recently had dinner in Westminster with Sigmar Gabriel, the leader of the SPD in Germany. According to one confidant, ‘they talked about the need for a new kind of mission for the EU’.”
Meanwhile, the FT argues, “Mr Osborne’s willingness to endorse closer fiscal union – and his tacit acceptance that this may mean a diminution of British influence,  is a realistic response to a grave crisis. But the creation of a two-tier Europe is unlikely to make the UK’s relationship with Brussels any smoother.” FT Editorial Times: Sylvester Conservative Home John Redwood Diary

3) … Commentary:
The Age of Deleveraging and Neofeudalism will be characterised by government leaders and corporate leaders ruling in diktat via regional framework agreements, as national sovereignty is waived for regional interests to impose austerity and debt servitude on all, as nations loose their debt sovereignty to bond vigilantes and rating agencies, and in turn have to sacrifice their fiscal sovereignty to the rule of regional leaders, who exercise unified and federal fiscal authority.  There will be no liberty and no sovereign individuals. The word, will and way of these regional sovereigns, will provide both regional economic governance and seigniorage, that is moneyness.  

The growing spectre of the loss of debt sovereignty is seen in the Bloomberg report Italian, Spanish Yield Spreads to Bunds Widen After European Debt Auctions. Italian and Spanish 10-year bonds fell and benchmark German bunds advanced, widening the difference in yield between the securities, after debt sales by the Mediterranean nations. The Spanish 10-year bond yield increased four basis points to 6.07 percent as of 10:32 a.m. in London, widening the spread to bunds by six basis points to 333 basis points. The Italian 10-year bond yield climbed six basis points to 5.72 percent. The Italian-German spread rose to 298 basis points. Italy auctioned six month bills at the highest yield in almost three years, while Spain sold 2.89 billion euros ($4.2 billion) of three-month bills and six-month bills compared with a maximum target of 3 billion euros

There is coming a day when the European nations will be closed out of the global Treasury Bond market place, and buying interest from the ECB will wane. At that time they will have lost their debt sovereignty, and have no fiscal authority and the current debt crisis will be full blown.   

And the growing spectre of the loss of debt sovereignty is seen in the Bloomberg report U.S. May Have Enough Cash to Delay Aug. 2 Deadline for Default. The U.S. Treasury Department may have enough cash to pay the government’s bills for days or even weeks if Congress fails to raise the debt limit before an Aug. 2 deadline, say analysts at UBS AG (UBSN) and Barclays Capital.

The date set by the Treasury is a projection for when the U.S. exhausts its authority to borrow, not when it runs out of money. Chris Ahrens at UBS and Ajay Rajadhyaksha at Barclays say the debt limit may not have to be raised next week, in part because tax revenue is coming in higher than forecast. “Having borrowing authority is like having a credit card,” Rajadhyaksha said in an e-mail yesterday. While the Treasury “will no longer be able to use its credit card” after Aug. 2, “it should still be able to pay its bills on Aug. 3, which is ultimately what matters most.”

Global economic collapse is coming soon: a mortal wound, a stroke, is coming to the head of worlds’ most important institution, that is the financial, economic, banking, investment and sovereign debt markets as Euorpean debt sovereign crisis and the US Treasury Debt Limit crisis deepens.

Chart of world government bonds, BWX, shows their rise to a triple high on today’s parabolically higher world currencies.

Chart of International Corporate Bonds, PICB, shows their parabolic rise higher today on higher world currencies.

Chart of the 30 Year US Government Bond, EDV shows these topped out in early July 2011.

Chart of the 10 Year US Government Note, TLT. shows these topped out in early July 2011.

The fall seen in the Chart of the Flattner ETF, FLAT, since July 19, 2011, communicates that the The 30-10 US Sovereign Debt Leverage Curve Daily, $TYX:$TNX, is falling lower as the 10 30 Yield Curve, $TNX:$TYX, has steepened since July 19, 2011. The Age of Leverage has given way to the Age of Deleveraging with Prosperity giving way to Austerity.

The Leverage Curve $TYX:$TNX

The Industrial, IYJ, , the Transports, IYT, and The Morgan Stanley Cyclicals Index, $CYC, continued their Elliott Wave 3 Decline that commenced in July 2011.

A whole new economic and investment regime and experience is at hand.
As like in The Matrix where just before Neo takes the red pill takes effect, Cypher warns Neo “Buckle your seatbelt, Dorothy, ’cause Kansas is going bye-bye!”.  Now with the turning lower of the seigniorage stocks and the defensive stocks, the world is passing from the dusk of neoliberalism and into the night of neoauthoritarianism.

The seigniorage stock Annaly Capital Management, NLY, turned lower yesterday and manifested a long legged doji today.

The defensive stocks, such as the Biotechnology, XBI, and Pharmaceutical, XPH, Small Cap Health Shares, PSCH, Staples, XLP, Water Stocks, FIW, and the Small Cap Revenue Shares, RWJ, fell lower today.

Stocks falling lower today included
Metal Manufacturing, XME,
Morningstar Mid Growth, JKH,
Manufactured Housing, CVCO,
Home Builders, ITB,
Too Big To Fail Banks, RWW
Natural Gas Partnerships, AMJ,
Small Cap Industrial, PSCI,
Steel, SLX
Banks, KRE,

India, INDY,
India Small Cap, SCIN,
Brazil Financial, BRAF,

US Steel, X, fell sharply as Reuters reports inflation destruction.  Wall St. Hammers U.S. Steelmakers on Weak Outlooks. Shares of U.S. steelmakers fell sharply on Tuesday after the companies warned of lower third-quarter profits due to slow economic recovery, a drop in steel prices due to over-capacity, and higher raw material costs. Consumer Staples, XLP, fell lower on Inflation destruction as the Associated Press reports diaper manufacture Kimberly Clark, manufacture of Kleenix and Huggies Diapers, cites costs as profits decline eighteen percent.  
Open Europe relates Le Figaro reports that French President Nicolas Sarkozy has written an open letter to both houses of Parliament, a procedure never used before, calling for France to be “exemplary in the rearrangement of its public accounts”, in a clear allusion to the “golden rule” included in the EU’s economic governance pact, that would inscribe in the French Constitution the obligation of a return to budgetary stability. Le Figaro Le Figaro: du Limbert

Open Europe reports The Commission has demanded that Spain show evidence that Romanian people have a negative impact on the labour market, after the Spanish government passed rules to restrict Romanians’ work permits. Expansion

Wall Street Journal reports A Leadership Default. The Obama Presidency has been unprecedented in many ways, and last night we saw another startling illustration: A President using a national TV address from the White House to call out his political opposition as unreasonable and radical and blame them as the sole reason for the “stalemate” over spending and the national debt. We’ve watched dozens of these speeches over the years, and this was more like a DNC fund-raiser than an Oval Office address. Though President Obama referred to the need to compromise, his idea of compromise was to call on the public to overwhelm Republicans with demands to raise taxes. He demeaned the GOP for protecting, in his poll-tested language, “millionaires and billionaires,” for favoring “corporate jet owners and oil companies” over seniors on Medicare, and “hedge fund managers” over “their secretaries.” While he invoked Ronald Reagan, the Gipper would never have used such rhetoric about his opposition on an issue of national moment. (Hat Tip to Between The Hedges)

Politico reports Harry Reid’s Debt Ceiling Plan Faces Tough Odds. Senate Majority Leader Harry Reid’s new budget proposal to raise the national debt ceiling faces tough odds in his chamber, even with a White House endorsement. The Nevada Democrat’s proposal includes each party’s sacred cow: no revenue increases for Republicans, and no cuts to Social Security, Medicare or Medicaid for Democrats. But the bill calls for $1 trillion in savings from winding down the wars in Iraq and Afghanistan, a provision that Republicans, and even a Democratic caucus member, dismissed as a budgetary gimmick since the Pentagon already had planned to cut military spending through the troop drawdown. “I don’t think it’s a real cut,” Sen. Joe Lieberman (I-Conn.) told POLITICO, though he didn’t rule out supporting the plan. “It’s like a bookkeeping cut. It goes to an artificially high [Congressional Budget Office] number to just what we assume will be a reduction in overseas contingencies fund because we’re drawing our troops out of Iraq and Afghanistan.” Sen. Marco Rubio (R-Fla.) called it a “terrible plan” that “does not solve our problem.” And Sen. John Cornyn (R-Texas) pointed to the $1 trillion in savings from Iraq and Afghanistan and said, “I don’t know how you call that a savings.” (Hat Tip to Between The Hedges)

Dollar Collapse reports OfTwoMinds.com relates 500 Million Debt-Serfs and GEAB Leap 2020 Last Warning Before the Autumn 2011 Shock

Neofeudalism will see conflicts amongst leaders. Wall Street Journal reports Frenemies: Two Greek Rivals Hold Nation’s Fate in Balance. Amongthe most adept and capable, will be the Sovereign, the European Chancellor, who will have a fierce disposition and who will be adverse to any contrarians, or  libertarians who oppose him.  Ron Paul in most ways, is the polar opposite of the coming Sovereign; but is like him, in that both have zeal and determination to rise to be the top dog. Speaking of top dogs, the Sovereign, will be accompanied by the Seignior, the top dog banker, who eventually will effect unified regulation of banking globally, as called for by Timothy Geither in Financial Times article.  Doug Noland communicated that Neolilberalism was charactized by wildcat finance; Neoauthoritarianism is charactrized by wildcat governance. Both are fascinating and terrifying to observe; the former is like a giant anaconda slithering across the jungle floor; the latter is like a seven headed and ten horned beast rising from the sea of humanity; the beast of global governance compbined with state capitalism is coming to rule mankind. Most investors are totally unprepared for Neoauhoritarianism as they are invested in fiat assets of a prior age of plastic wealth; they are going to experience the investment “desert of the real” and like Neo in the movie The Matrix, quickly “want out. I’ve consistently recommended that one be invested in gold bullion.       

4) … The US Dollar, $USD, traded by UUP, closed lower today at 73.50
The world currencies, DBV, emerging market currencies, CEW, commodity currencies, CCX, FXA, FXE, FXM, FXC, ICN,FXB, FXS, SZR, FXF,CYB, BZF, XRU, FXY, BNZ, all moved parabolically higher.on the trade that the US sovereign debt is going to loose its top rating.
 

5) … Base Metals, DBB, rose to a triple high.

x

Stocks Turn Lower As Sentiment Rises Against The Leaders’ Greek Default Framework Agreement And Establishment Of A European Monetary Fund

July 25, 2011

Financial Market report for July 25, 2011

1) … Sentiment rises against the Leaders’ Greek Default Framework Agreement
Zero Hedge relates Merkel facing German revolt over Greek Bailout.and Open Europe relates A long summer ahead as Sarkozy and Merkel face criticism at home on Greek debt deal.

CNNMoney reports Europe’s Big Debt Deal leaves plenty of room for worry. The big challenge, economists say, is how to revive growth in troubled European economies so that debts and deficits can be resolved organically. Jonathan Loynes, an economist at Capital Economics, said the new measures include “some significant advances” in the policy response to the debt crisis.”But once the dust settles, the markets will surely return to the question of whether the package really addresses the fundamental economic and fiscal challenges facing both Greece and the euro zone in general,” he said. “They will probably conclude that the answer is no.”

Bloomberg reports Dexia may lose $662 Million in Greek Rescue Plan, L’Echo reports. Dexia SA (DEXB), the bank that took the most Federal Reserve discount-window help in October 2008, may face losses of as much as 461 million euros ($662 million) on its holdings of Greek bonds if it joins a euro-area bailout plan, L’Echo reported, citing its own calculations. Dexia holds a maximum of 2.2 billion euros of Greek debt that matures before the end of 2020 and would fall under the voluntary private-sector component of the 159 billion euro rescue, the Brussels-based newspaper reported today, citing its own estimate. Given that participating banks will agree to write down the value of their Greek securities by 21 percent as part of the bond exchange and debt buyback program, according to the Institute of International Finance, Dexia would face as much as 461 million euros of losses, L’Echo said. Europe’s 90 biggest banks hold about 98 billion euros of Greek debt, according to the European Banking Authority. They stand to lose 20.6 billion euros on their Greek government bonds after lenders in the region pledged to contribute to a new rescue package. Dexia hasn’t committed to participate in the support measures for Greece. The bank is waiting for the European Banking Authority to issue conclusions on the plan, L’Echo said, citing spokesman Benoit Gausseron.

2) … Stocks falling lower today included
CAF -3.1%
EUFN -2.5%
XBI -2.5%
EWP -2.4%
EWI -2.1%
SEA -2.1%
XSD -2.1%
IHF -2.0%
FAA -1.9%
PSCH -1.8%
FPX -1.7%
IGN -1.7%
GEX -1.6%
IBB -1.6%
FONE  -1.5%
XPH -1.4%
VOX -1.4%
RZV -1.4%
PSCI -1.2%
IWM -1.2%
PSCT -1.1%
VCR -0.,8
PSCD -0.8%
GDX -0.8%
VSS -0.8%
ACWI -0.6%

3) … The failure of the seigniorage of Neoliberalism is seen in a number of indicators:
The Small Cap Value, RZV, and Small Cap Revenue Firm, RWJ, and Mortgage REIT, REM, and securitization of GSE debt company, Annaly Capital Management, NLY, falling 2.1% lower.

Gold mining stocks, GDX, and US Treasuries, EDV, always make market turns lower together as is seen in the ratio of GDX:EDV manifesting a dark cloud covering.

The ratio of the Small Cap Pure Value shares relative to the Small Cap Pure Growth shares weekly, RZV:RZG Weekly turning lower.

The ratio olf World Stocks, VT, relative to World Government Bonds, BWX, VT:BWX, has been falling and the Factor Shares 2X Gold/ Short S&P, FSG, has been in an Elliott Wave 3 Up since April 1, 2011.

The carry trade ETN, ICI, has been falling since April, 2011, as the Yen, FXY, has been rising and
Gold, GLD, has been in an Elliott Wave 3 up since April 2011.

In April 2011, the world passed from the Age of Leverage into the Age of Delveraging, and thus passed from prosperity into austerity; and from Neoliberalism and into Neofeudalism with the Announcement of the Leader’s Framework Agreement for Greek Default, which effected a bloodless Eurozone wide coup de etat, where the state leaders waived national sovereignty, and established the EFSF as a European Monetary Fund, that is a common Eurozone Treasury, at the insistence of President Sarkozy, but long opposed by the Germans.  Those living in the Eurozone are no longer citizens living in sovereign nation states; but rather residents living in a region of global governance, one of ten called for by the Club of Rome in 1974.  


4) … In today’s news

Bloomberg reports Vietnam’s Inflation Accelerates to 22%, Highest Among Economies in Asia. Vietnamese inflation accelerated for an 11th month in July after the central bank cut a key interest rate even as the nation faces the fastest price gains in Asia. Consumer prices rose 22.16 percent from a year earlier, compared with June’s 20.82 percent pace, data released by the General Statistics Office in Hanoi showed today. Prices climbed 1.17 percent from June. The central bank reduced its repurchase rate to 14 perent from 15 percent on July 4 after a spate of increases since November to fight inflation, leading the International Monetary Fund to say the cut may confuse investors. The benchmark VN Index of stocks is down 16% this year, on concern price gains will hurt the economy.

The Wall Street Journal reports UAW Focuses on VW’s Tennessee Facility. Volkswagen AG’s gleaming new auto plant in Tennessee is becoming a focal point in union efforts to gain a foothold among foreign auto makers’ U.S. manufacturing operations. An unusual nexus of German labor rules and U.S. law has raised union officials’ hopes in a region that has long resisted their overtures. The United Auto Workers union and labor officials at Volkswagen in Wolfsburg last week held talks about VW labor efforts to establish a German-style system of worker representation at the Tennessee plant.

Between The Hedges relates Welt am Sonntag reports European Central Bank Executive Board Member Lorenzo Bini Smaghi warned against provided a Greek-style debt-relief package to other euro-area countries. Bini Smaghi said he was “surprised” by former ECB chief economist Otmar Issing’s comment that Greece should quit the euro area after a debt restructuring.

Open Europe reports Bundesbank President Jens Weidmann spoke critically of the bailout deal saying, “The euro area [has] made a big step toward a collectivisation of risks in cases of unsolid public finances and economic mistakes…That’s weakening the foundations of a monetary union founded on fiscal self-responsibility.” Widespread support for the package within Angela Merkel’s coalition government still looks unsure. The deal may be ratified with the support of the opposition SPD party, but without unified coalition backing there would be widespread calls for a general election.  

And further relates EU summit agreement “rests on some heroic assumptions” Writing in the Sunday Telegraph, Open Europe Director Mats Persson argued, “Eurozone leaders took some decisive action this week to save their currency. But while the deal agreed at Thursday’s EU summit looks decent on paper, it rests on some heroic assumptions…For starters, the deal is a huge political gamble on the willingness of taxpayers throughout the eurozone to continue to underwrite other countries’ debts. This package also amounts to another step on the slippery slope towards debt union in Europe…So where does all of this leave Britain? Well, the UK remains exposed to future problems in the eurozone, not least via its banking system. Additionally, the new deal leads to cuts being made too far and too fast – necessary for the long-term – it could trigger a pretty nasty economic downturn in the eurozone in the short-term. Given the trading volumes between the UK and the eurozone, this could have a hugely negative impact.”
In the Telegraph, Edmund Conway argues that the deal struck by eurozone leaders last week “is dripping with moral hazard. Not only has a eurozone member been allowed to default, it has been promised a package of economic aid measures to set it back on the road to prosperity (and, one presumes, profligacy).” Italian economist Francesco Giavazzi writes in Il Corriere della Sera, “The message conveyed to debt-laden countries is: you need to make sacrifices, but don’t strive.”   

Writing in the FT Weekend, Europe Editor Tony Barber argued, “Sooner rather than later, politicians must address the problem of legitimacy. The paradox is that the debt crisis is driving Europe’s leaders towards closer integration while simultaneously sapping the public’s faith in that same goal.”
Writing in the Telegraph, columnist Ambrose Evans-Pritchard argues, “They never wavered in their faith that EU states would yield sovereignty to save the euro if push came to shove, that monetary union would force the pace towards joint EU government. So it proves to be, for now. But let us not forget that Europe’s ideologues have achieved this only by pushing the world to the brink of catastrophe and holding parliaments to ransom with their great gamble.”
Saturday’s Times: Wighton Saturday’s Times: Parris Saturday’s Independent El País: Juppé El País: Colombani Sunday Express: Ferrari Independent on Sunday: McRae Coulisses de Bruxelles Independent on Sunday: Pagano Independent: Leader Observer: Hutton Observer: Keegan Telegraph: Conway Le Monde: Pisani-Ferry FTD: Hankel WSJ: Stelzer Sunday Telegraph: Persson Sunday Times: Marsh Independent: O’Grady BBC: Flanders Sunday Telegraph: Daley Saturday’s Telegraph: Armitstead Weekend FT Weekend FT: Barber Weekend FT: Mallaby Telegraph: Evans-Pritchard FT: Munchau

Mike Mish Shedlock reports that the financial markets are no longer certain about last Thursday’s agreement, as interest rates came back up again on Friday and over the weekend. and the Wall Street Journal reports Italy, Austria cancel bond auctions

The FT reports US money market funds are withholding funds from the European banking system, with the result that liquidity has been drying up.

Wolfgang Münchau writing in the FT says the Leaders’ Agreement failed to address Greek debt sustainability and contagion.

No Compromise Seen On Debt Limit Negotiations … Bible Prophecy Foretells A World Chancellor Will Rise Out Of Sovereign Debt Crisis And Economic Collapse

July 25, 2011

The Wall Street Journal reports Gridlock for Debt Talks. Republicans and Democrats on Capitol Hill moved along separate tracks Sunday toward a deal to increase the U.S. government’s borrowing authority, setting America’s gridlocked political system on a collision course with jittery financial markets around the world. The two camps remained split over how much to increase the debt limit—enough to get past the 2012 election or not—and how much.

I do not envision compromise on the debt limit, rather, continuing conflict with President Obama declaring martial law and ruling by Executive Order in August or Septemeber 2011.

EconomicPolicy Journal presents Ron Paul calling for the US to Default now. Mr Paul is an Anarcho Capitalist, as are all those of the Mises Institute persuasion. They embrace the concept of government collapse so that sovereign individuals can live in liberty. But, Bible prophecy of the ten toes found in Daniel Chapter 2:31-35, and the ten horns of Revelation 13:1-4, presents that ten regions of global governance will form to rule mankind.

We see this being fulfilled in the recent Leaders’s Framework Agreement for Default of Greek debt where state leaders effected a continental wide coup d etat, waiving national sovereignty and announcing a Liability Union, that is a Debt Union, with the EFSF monetary authority coming to the forefront as a European Monetary Fund, to recapitalize banks, essentially a European Treasury, long opposed by Germans, but insisted upon by Sarkozy of France.

Canada, Mexico, and America, will coalesce into CanMexAmerica, another one of the ten regions of global governance called for by the Club of Rome, once martial law is declared, and the blue helmeted troops come to restore order. The continent of North America was established as a region of global government by George Bush, Vincente Fox and Stephen Harper at Baylor University on March 23, 2005 with the announcement of the Security and Prosperity Partnership of North America.

Default on the US Debt is coming soon. Unfortunately Mr. Paul offers a vision that is contrary to  Neofeudalism seen in bible prophecy of Revelation 13-14.  And Specifically in Revelation 13:3, the head of the world’s most important institution, that is finance, commerce, trade and investment, suffers a massive head wound , that is a stroke. A Chancellor, the Sovereign, Revelation 13:5-10,  is coming to rule in Europe, and eventually the world.  He will be accompanied by a Banker, The Seignior, Revelation 13:11-18.

Seigniorage, that is moneyness, will not be based on the leverage of soveign debt, but rather on the word, will and way of these two individuals working through Leader’s Framework Agreements which waive national sovereignty. While Sovereign Debt can be and will be declined to be repaid, it is a liability that can only be repudiated by a sovereign and independently ruling government. In the Age of Neofeudalism, the coming Sovereign, will never repudiate the debt. Rather, He and the Seignior, will apply it to every man woman and child on planet earth.

The Announcement Of A European Liability Union By State Leaders Is A Fulfillment Of Bible Prophecy

July 23, 2011

The Leaders Framework Agreement at the Brussels July 21, 2011 Summit declared a default in Greek sovereign debt and established a Liability Union and a region of global economic governance with the objective of economic competitiveness imposing austerity.  Such a region is one of ten called for by the Club of Rome in 1974.

The Leaders Agreement was ordained by God and is a fulfillment of Bible Prophecy by both the prophet Daniel and the Apostle John..

Daniel interpreted Nebuchadnezzar’s dream as a Progression of Kingdoms in Daniel 2:31-35 and prophesied five kingdoms to rule over mankind:
1)  Head of Gold: Babylon Empire
2)  Chest and Arms of Silver: Merdo-Persian Empire
3) Belly and Thighs: Greek Empire
4) Legs of Iron: Roman Empire
5) Feet and Ten toes of Iron And Clay: British Empire and American Imperialism and ten regions of global governance

The Leaders Declaration of Greek Default marks the transition into the days of the ten toed kingdom of dictatorship and state corporate rule in ten regions of global governance.

One of these ten regions, the Eurozone will manifest as a revived Roman Empire led by a Chancellor whose power will rival that of Charlemagne.  The Sovereign will be accompanied by an adept European Banker, the Seignior. Their word, will and way, will work through regional framework agreements, to provide both economic governance as well as seigniorage, that is moneyness, in the coming Age of Deleveraging and Neofeudalism, which replaces the Age of Leverage and Neoliberalism.

The elements of iron and clay symbolize diktat and democracy, and are by nature non-cohesive building materials. Eventually the fifth kingdom will give way to mankind’s sixth government, that is a one world government ruled by the Sovereign and described as beastly in Daniel 7:7, Daniel 7:22-25; Revelation 13:5-10 and Revelation 13:11-18.

The good news is that Jesus Christ will return to establish his Millenium Kingdom as prophesied in Daniel 2:35, Daniel 2:44-45, Daniel 7:13-14 and Daniel 7:26-27.

The currency union know as the Eurozone was transformed into a Liability Union by Leader’s Announcement. Those living as citizens living in the former sovereign nations are now all one, sharing in the debts of one another and living as residents in a region of global government. Sovereign individuals have been replaced with sovereign leaders who have effectively waived national sovereignty.  

This debt union is also a transfer union as France and particularly Germany will be providing the lions share of funding for the EFSF bonus. Thus by France’s Nicholas Sarkozy insistence, the Leader’s Agreement establishes essentially a European Monetary Fund, that is an European Treasury, long opposed by Germans, which in effect will create Eurobonds and recapitalize banks and the ECB will provide liquidity.

This Federal Union is a Fiscal Union as well, as goals for competitiveness, that is austerity, are part of the Leaders’ Announced Plan. Fiscal Authority of sovereign nation states has been sacrificed by European Leaders, as Greece and Portugal have lost their debt sovereignty to the bond vigilantes.  

London Thomas and Stephanie Castle writing in New York Times article Heads of Europe Back Plan To Rescue Greece quote Mr. Buchbelt, a lawyer at Clery, Gottlieb, Steen & Hamilton as saying: “This will take maturing bonds out of the equation and it keeps the bondholders in the game and ultimately will make them share in the  pain.  Everyone knows that something more drastic is coming; but when it comes you want it to be the bondholders not the taxpayer.”

To that I say, the Leaders’ Framework Agreement for Greek Default is paving the way for servitude of all Europeans.           

Sovereign Debt, in large part served as the seigniorage for the Age of Neoliberalism. While Sovereign Debt can be and will be declined to be repaid, it is a liability that can only be repudiated by a sovereign and independently ruling government.

In the Age of Neofeudalism, the coming Sovereign, will never repudiate the debt. Rather, He and the Seignior, will apply it to every man woman and child on planet earth, as their word will and way will be the basis of the new seigniorage.

The Declaration of Greek Default is not a declaration of independence, but of interdependence, and has established a new era of regional economic governance and a new seigniorage coming from the EFSF Monetary Authority, the European Treasury.

The Declaration of Greek Default has laid the foundation for the rise to power of the Sovereign and the Seignior whose word, will and way, will be both governance and seigniorage, that is moneyness in the age of Neofeudalism.

The experience of the Euro Currency Union was a failure as the Greeks failed to enact labor market reform as well as failed to implement responsible tax collection policies with the result that Greek society produced patronage and pork, as an entire culture of the government worker formed as nearly all became employed by the state and professions were closed. Now one should look for the final Leaders Statement which will prescribe “legally binding national fiscal frameworks” with “competitiveness goals”  which effect fiscal policy, not at the state level, but at the federal level. Greeks cannot become Germans, yet all will be for and under one, specifically One Government and One Leader, The Sovereign, and his banker, The Seignior, who together will impose austerity and debt servitude for all   

Respect for and fear of the Sovereign and the Seignior will be the basis for European government and economic existence. Soon, out of Götterdämmerung, a clash of the gods, specifically the rating agencies and the world leaders, Bible prophecy foretells in Revelation 13:3 that the head of world’s financial system will suffer massive a mortal wound, that is a stroke, but that this apparent wound to fiscal seigniorage and credit seigniorage will be healed, and that the people will be amazed and follow after the beast system of corporatism and regional governance. The Bible specifically foretells in Revelation 13:4, that people will wonder after and give allegiance to global governance, as all vestiges of national sovereignty is swept away.

The Declaration of Greek Default Begins The Era Of Regional Economic Governance And Seigniorage, That Is Moneyness, By The Word, Will, And Way Of Leaders

July 23, 2011

Financial Market Report for July 22, 2011

1) … The charts of Industrials, IYJ, and transports, IYT,  clearly show the trend is now down.

World stocks, ACWI, World Small Caps, VSS,  the S&P, SPY, the DOW, DIA, the New York Composite, NYC, the Russell 2000 Growth, IWO, Latin America, LATM, the Nasdaq, QTEC, Real Estate Asset Management Company, Blackrock, BLK, all crested and entered an Elliott Wave 3 Down down on July 8, 2011, on the failure of the seigniorage of Neoliberalism, exhaustion of quantitative easing, and inflation destruction.

The prosperity that came with the Milton Friedman Free To Choose Neoliberal Regime is being replaced by austerity of the Diktat of Regional Framework Agreement Neofeudalism Regime and will see the fall of Junk Bonds, JNK, Distressed Investments, FAGIX, and Utilities, XLU, as interest Treasury Rates rise and the Euro, FXE, fall lower. With the Leaders’ Announcement of Greek Default, the world has passed from Democracy into Statism, that is State Corporatism, manifesting in the ten regions of global governance as called for by the Club of Rome in 1974.  

The defensive utility stocks, Nisource, NI,  Idacorp, IDA, NextEra Energy,  NEE, manifest as topping out.

Residential REITS such as EQR, Retail And Shopping Center REITS such as Gilmcher Realty Trust, GRT, and Industrial REITS such as Extra Space Storage, EXR, are now topping out and will be turning lower.  Their seigniorage is based upon monthly rents and are the last hold out in the prosperity that came with the Age of Leverage which was dependent upon so called financial deregulation which came from the repeal of the Glass Steagall Act, the ability of companies such as Annaly Capital Management, NLY to scrutinize GSE Debt, primary dealers and investment bankers given POMO to sell Treasury bonds, and the mark to fantasy, not mark to market, rule of FASB 157.    

Yen carry trade lender Sumitomo Mitsui Financial Group, SMFG, is now rising on a higher Yen, FXY, cresting up into an Elliott Wave 2 High, and will be entering an Elliott Wave 3 Down.  The iPath Optimized Currency Carry ETN, ICI, entered an Elliott Wave 3 Down in late April and early May 2011, as the Yen, FXY, began its Elliott Wave 3 Up rise.

ICI

FXY

The failure of the seigniorage of Neoliberalism is also seen in The Morgan Stanley Cyclical Index Basic Material Component, Freeport McMoRan Copper & Gold, FCX, cresting through an Elliott Wave 2 High and turning lower.

Technology shares, XLK, is now attaining a double top.

Small Cap Industrial ball bearing Manufacturer, ROLL, is also attaining a double top.

The Metal Manufacturing ETF, XME, is cresting up into an Elliott Wave 2 High.

The Commodity Base Metals, DBB, is cresting up into an Elliott Wave 2 High.

Pay Day Loan Company, EZCORP, EZPW. fell parabolically lower. I’m a social security recipient and for the first time took out a pay day loan early in July.  If President Obama follows through on his statement that he will cut off Social Security and Veteran payments, if there is a deadlock on the debt ceiling, will I still be held responsible for repayment of the loan if my pay day does not come in? Perhaps I will be $200 wealthier come the first of the month, and the pay day loan company, poorer. If the social security check comes in I will repay the loan on the first of the month. Nevertheless, I know a default is coming on US Debt, and that there will be failed Treasury auctions, so I have cancelled as many ongoing obligations as possible, which includes the fitness club membership, leaving the land line phone bill, dental insurance, and Stockcharts.com subscription.     

Energy Companies, XLE, Energy Service Companies, OIH, are cresting up into an Elliott Wave 2 High. Exxon Mobil, XOM,  is cresting up into an Elliott Wave 2 High. Energy service companies, IEZ are double topping out.

Midcap growth stocks, JKH, and midcaps such as Harley Davidson, HOG, have been stellar performers.

The chart of Turkey, TUR, shows that it began to loose its seigniorage with the implementation  of Quantitative Easing 2.

The chart of Thailand, THD, shows that it has gained seigniorage with the decline of the US dollar; its largely unregulated export and tourist economy, have created a safe haven investment for currency and stock investors.

There has been a strong rally in the shares of Carbo Ceramics, CRR,

2) …  Senate rejects House GOP bill to cut spending as House speaker says no deal with Obama
Jim Kuhnhenn of the Associated Press reports  President Barack Obama and House Speaker John Boehner pressed their search on Friday for an elusive debt-limit compromise as the Senate rejected a House plan containing deep spending cuts and for the moment put aside a last-ditch fallback option. The 51-46 party-line Senate vote, and a decision by Senate Majority Leader Harry Reid, D-Nev., to cancel weekend Senate sessions, left unresolved the urgent issue of how to lift the nation’s borrowing powers to avoid a first-ever U.S. default on Aug. 3. Boehner, R-Ohio, told reporters that, despite reports that Obama and he were closing in on a $3 trillion deficit-reduction deal, “There was no agreement, publicly, privately, never an agreement, and frankly not close to an agreement.” The administration says the government is in danger of defaulting for the first time in its history after an Aug. 2 deadline, unless Congress raises the $14.3 trillion federal debt ceiling so the U.S. can keep borrowing enough to pay its bills.

Those in both parties want to couple a deficit-reduction provision to the debt limit increase. Obama and his Democratic allies want the package to include some tax increases while Republicans want to do it with spending cuts alone. The vote in the Democratic-controlled Senate blocked a House-passed bill, strongly backed by tea party factions, that would have required Congress to slash spending and pass a balanced budget amendment before raising the nation’s borrowing powers. The House measure was a GOP conservative priority, although its passage in the Democratic-controlled Senate was never expected. Still, the narrow party line vote underscored the deep differences between the two parties on deficit reduction.

3) … In Palestinian city, diggers uncover biblical ruin.  
Matti Friedman of the Associated press reports from Nablus West Bank that archaeologists unearthing a biblical ruin inside a Palestinian city in the West Bank are writing the latest chapter in a 100-year-old excavation that has been interrupted by two world wars and numerous rounds of Midesast upheaval.

Working on an urban lot that long served residents of Nablus as an unofficial dump for garbage and old car parts, Dutch and Palestinian archaeologists are learning more about the ancient city of Shekhem, and are preparing to open the site to the public as an archaeological park next year.

The project, carried out under the auspices of the Palestinian Department of Antiquities, also aims to introduce the Palestinians of Nablus, who have been beset for much of the past decade by bloodshed and isolation, to the wealth of antiquities in the middle of their city.

“The local population has started very well to understand the value of the site, not only the historical value, but also the value for their own identity,” said Gerrit van der Kooij of Leiden University in the Netherlands, who co-directs the dig team. “The local people have to feel responsible for the archaeological heritage in their neighborhood,” he said. The digging season wrapped up this week at the site, known locally as Tel Balata.

The city of Shekhem, positioned in a pass between the mountains of Gerizim and Eibal and controlling the Askar Plains to the east, was an important regional center more than 3,500 years ago. As the existing remains show, it lay within fortifications of massive stones, was entered through monumental gates and centered on a temple with walls five yards (meters) thick.The king of Shekhem, Labaya, is mentioned in the cuneiform tablets of the Pharaonic archive found at Tel al-Amarna in Egypt, which are dated to the 14th century B.C. The king had rebelled against Egyptian domination, and soldiers were dispatched north to subdue him. They failed. The city also appears often in the biblical narrative.

The patriarch Abraham, for example, was passing near Shekhem when God promised to give the land of Canaan to his descendants in the Book of Genesis. Later, Abraham’s grandson Jacob was camped outside the walls when a local Canaanite prince raped his daughter, Dinah. Jacob’s sons sacked the city in vengeance. The body of Jacob’s son Joseph was brought from Egypt hundreds of years later by the fleeing Israelites and buried at Shekhem. Two millennia ago, the Romans abandoned the original site and built a new city to the west, calling it Flavius Neapolis. The Greek name Neapolis, or “new city,” later became enshrined in Arabic as Nablus. In Hebrew, the city is still called Shekhem. Nablus has since spread, and ancient Shekhem is now surrounded by Palestinian homes and car garages near the city’s eastern outskirts.

One morning this week, a garbage container emitted smoke from burning refuse not far from the remains of the northwestern city gate in a curved wall built by skilled engineers around 1600 B.C.
A visitor can walk through the gate, passing through two chambers before emerging inside the city. From there it is a short walk to the remains of the city’s temple, with a stone stele on an outdoor platform overlooking the houses below.

The identity of the city’s residents at the time remains unclear. One theory posits that they were Hyksos, people who came from northern Syria and were later expelled from Egypt. According to the Bible’s account, the city was later Canaanite and still later ruled by Israelites, but archaeology has not corroborated that so far, van der Kooij said.

A German team began excavating at the site in 1913, with Nablus under the control of the Ottoman Turks. The dig was interrupted by World War I but resumed afterward, continuing sporadically into the 1930s under British rule. Much of the German documentation of the dig was lost in the Allied bombings of WWII. American teams dug at the site in the 1950s and 1960s, under Jordanian rule. Israel conquered Nablus, along with the rest of the West Bank, in the 1967 Mideast war. Over the years, the site fell into disrepair. The neglect was exacerbated after the first Palestinian uprising in the late 1980s, when Nablus became a center for resistance to Israeli control. Its condition further deteriorated after the second, more violent, uprising erupted in 2000, drawing Israeli military incursions and the imposition of roadblocks and closures that all but cut the city off from the outside world. In recent years, with the Western-backed Palestinian Authority increasingly asserting security control over the cities of the West Bank, Israel has removed some roadblocks and movement has become more free. Visitors to Nablus are still rare, but the improvements helped convince the archaeologists that the time had come to resume work.

The new excavations and the establishment of the archaeological park are a joint project of the Palestinian Tourism Ministry, the Dutch government and UNESCO. The project began last year and is scheduled to end with the opening of the park in 2012.

In Israel, archaeology, and especially biblical archaeology, has long been a hallowed national pursuit traditionally focused on uncovering the depth of Jewish roots in the land. For the Palestinians, whose Department of Antiquities was founded only 15 years ago, the dig demonstrates a growing interest in uncovering the ancient past.

The department now has 130 workers and carries out several dozen rescue excavations every year on the sites of planned building projects in areas administered by the Palestinian Authority, said Hamdan Taha, the department’s director. Ten ongoing research excavations are being conducted with foreign cooperation. All of the periods in local history, including that of the biblical Israelites, are part of Palestinian history, Taha said. Digs like the one in Nablus, he said, “give Palestinians the opportunity to participate in writing or rewriting the history of Palestine from its primary sources.”

4) …Iran prez said pushing for nukes.  
George Kahn of the Associated Press reports Iran’s president wants to shed the nation’s secrecy and forge ahead openly with developing nuclear weapons but is opposed by the clerical leadership, which is worried about international reaction to such a move, says an intelligence assessment shared with The Associated Press. That view, from a nation with traditionally reliable intelligence from the region, cannot be confirmed and contrasts with assessments by other countries that view Iranian President Mahmoud Ahmadinejad as relatively moderate on the nuclear issue compared to the country’s Supreme Religious Leader.

5) … The Declaration of Greek Default begins the Era Of Regional Economic Governance and seigniorage, that is Moneyness, by the word, will and way of leaders.
The Leaders Default Agreement for Greece created a a Liability Union, that is a Debt Union, with the EFSF acting as a European Treasury providing seigniorage aid for Greece. It  was President Sarkozy who pressed for and obtained the initiation of this European Monetary Fund, long opposed by Germans. The Telegraph reports:  “The €159bn Greek bailout is bad news for German taxpayers, the country’s influential Ifo think tank said. Hans-Werner Sinn, the head of the think tank and an open critic of the bailout, said: ‘Germany and France should not make policies that lead to the collectivisation of debts in Europe.’  He told Reuters TV: “The financial markets are reacting very positively to yesterday’s agreements. As this is a conflict of apportionment between Europe’s tax payers and investors, this is bad news for tax payers.”

When the final  Leaders’ Communique is released, I am sure we will be told of details that document strong euorpean economic governance implementing a Fiscal Union where Greece will be required to sacrifice its fiscal sovereignty, and accept competitiveness goals, read austerity, in as much as it has lost its debt sovereignty to the bond vigilantes, for its exercise of patronage and pork in its administration of socialism for over the last ten years. Greece has been a society totally closed off to meritocracy, as professions have been closed, and all jobs handed out by unions and paid by the government.  

Sovereign Debt, in large part served as the seigniorage for the Age of Neoliberalism. While Sovereign Debt can be and will be declined to be repaid, it is a liability that can only be repudiated by a sovereign and independently ruling government.

In the Age of Neofeudalism, the coming Sovereign, will never repudiate the debt. Rather, He and the Seignior, will apply it to every man woman and child on planet earth, as their word will and way will be the basis of the new seigniorage.

Felix Salmon writes Greece Defaults and Consillium provides the Official Statement of Defaultt by the EU

Simon Kennedy and Jonathan Stearns Bloomerg report EU Leaders Offer $229 Billion in New Greek Aid. Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they erected a firewall around Spain and Italy and risked temporary default to lighten Greece’s debt burden.

After eight hours of talks in Brussels, leaders announced 159 billion euro ($229 billion) in new aid for Greece late yesterday and cajoled bondholders into footing part of the bill. They also empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after a market rout last week sparked concern the crisis was spreading. The fund can also aid troubled banks and offer credit-lines to repel speculators.

Tyler Durden in Zero Hedge relates The Fatal Flaw In Europe’s Second “Bazooka” Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP.

Bruno Waterfield and James Kirkup of the Telegraph relate European Deal Could Lead to Two-Speed Europe. European leaders thrashed out an agreement to save the stricken euro last night, with a major step towards a full economic union in which taxpayers in rich nations would cover the spending of poorer ones. The attempt to bail-out Greece and other struggling eurozone countries raised the prospect of a two-speed European Union with far closer ties between countries using the euro compared with those, such as Britain, that remained outside. Nicolas Sarkozy, the French president, said the deal had pulled the eurozone back from the brink of disaster and laid foundations for the creation of an EU “economic government”. He hailed it as “a historic moment” that would provide “bold and ambitious” plans for the creation of an embryonic EU treasury in the form of a European Monetary Fund. “By the end of the summer, Angela Merkel and I will be making joint proposals on economic government in the eurozone. Our ambition is to seize the Greek crisis to make a quantum leap in eurozone government,” he said. Even large euro countries such as Italy and Spain have seen their borrowing costs jump, raising fears of a financial crisis that could destroy the single currency. In response, eurozone leaders meeting in Brussels were drawing up a deal that would effectively use money from successful northern economies such as Germany to support the budgets of indebted nations in southern Europe. The agreement being discussed last night will hugely expand the role of a €440  billion (£389 billion) eurozone emergency bail-out fund, effectively creating a European Monetary Fund. The fund will be able to make “precautionary” loans to eurozone members, which they could use instead of borrowing money from the markets. It will also be able to make loans to recapitalise banks in the weaker economies and buy back government bonds from private investors.

Angela Merkel, the German Chancellor, was forced to cave in to French demands to significantly extend the role of the EFSF, to which Germany provides more than a quarter of the funding. German officials said Mrs Merkel was braced for a major political row as taxpayers in Germany recoiled from a step that will redistribute their money to highly indebted Mediterranean countries
  
Peter Tchir of TF Market Advisors writing in Zero Hedge relates.EFSF and Sovereign CDS Pitchbook Updates. The conclusion: The reality is that Germany, France, and the Netherlands, or maybe just Germany, will have to guarantee a combined 100% of EFSF issuance. The original EFSF made a lot of effort to protect EFSF loans from losses. All that those protections are gone and any rational investor has to assume the EFSF will have large mark to market losses up front and potentially large realized losses over time. You would only lend to EFSF if it was fully backed by the AAA members, and ideally Germany as they are the strongest and biggest by far. It remains to be seen if the entire market sees it this way, and if they do, will Germany be willing to provide that much support? I remain highly skeptical that this plan will ever be implemented in a meaningful way because it will place too much pressure on the AAA nations.

6) … A few reasons as to why ObamaCare discourages employers from hiring.
Neal Boortz relates in article The Economy Stalled After Obamacare Passed. Businesses with fewer than 50 workers have a strong incentive to maintain this size, which allows them to avoid the mandate to provide government-approved health coverage or face a penalty.

Businesses with more than 50 workers will see their costs for health coverage rise—they must purchase more expensive government-approved insurance or pay a penalty; and Employers face considerable uncertainty about what constitutes qualifying health coverage and what it will cost. They also do not know what the health care market or their health care costs will look like in four years. This makes planning for the future difficult. (Hat Tip to Between The Hedges)
7) … Politico reports  Moody’s warns 5 states of downgrade; this as Municipal Bonds, MUB, raced to an all time high today in a type of short sell covering.  
8) … Growing Wealth Disparity seen in rising New York real estate prices.
Oshrat Carmiel and Ashwin Seshagiri of Bloomberg report: “Home prices in New York’s Hamptons, the Long Island resort towns favored by summering Manhattanites, increased 4.2% in the second quarter from a year earlier as buyers opted for more expensive beach properties.  The median price of homes that sold in the quarter rose to $937,500 according to Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. Thirty-nine percent of all sales completed in the Hamptons and Long Island’s North Fork were for houses priced at $1 million or more, the second-highest market share for such properties in three years.”
9) … An inquiring mind asks, Will President Obama declare martial law and rule by Executive Order? Associated Press reports Prospects for a debt breakthrough seem dim. Prospects for a breakthrough in debt talks Saturday at the White House appeared dim as Republican leaders issued defiant statements ahead of their meeting with President Barack Obama.

Keywords EFSF, Obamacare, Patronage, Pork, Closed Professions, Neoliberalism, Exhaustion of Quantitative Easing, Inflation Destruction, Greek Default, Era Of Regional Economic Governance And Seigniorage, Regional Economic Governance, Seigniorage, The Seignior, The Sovereign, European Treasury, European Monetary Fund, Neofeudalism, Milton Friedman, Free To Choose, State Corporatism, Glass Steagall Act, FASB 157, Yen Carry Trade, Carry Trade Investing, Quantitative Easing, Liability Union, Transfer Union, Debt Union, European Economic Governance, Regional Economic Governance, Global Governance, Fiscal Union, Fiscal Sovereignty, European Monetary Fund, Austerity, Meritocracy, Municipal Debt, Regional Economic Governance, Martial Law, Executive Order,

Europe Takes A Big Step Toward A Debt And Fiscal Union As Herman Van Rompuy Orchestrates Another Bailout For Greece .. Will President Obama Declare Martial Law In The Event Of An Impasse On The Debt Ceiling?

July 21, 2011

Financial Market Report for July 21, 2011

1) … World currencies, DBV, Emerging Market Currencies, CEW, and Commodity Currencies, CCX, rose … lifting world stocks, ACWI, Industrials, XLI, the DOW, DIA, Utilities, XLU, World Government Bonds, BWX, and Emerging Market Bonds, EMB, as the US Dollar, $USD, fell on a news of a Greek debt bailout and fears of a US Treasury downgrade as Bloomberg reports Obama Aide, Boehner Say No Debt-Limit Deal President Barack Obama’s spokesman and House Speaker John Boehner said there is “no deal” on raising the U.S. debt limit as all sides said they still lack a consensus on spending cuts and tax revenue.
FXS, +1.9
SZR, +1.5
FXE, +1.1
FXA, +0.9
FXB, +0.8
BZF, +0.8
BNZ, +0.8
XRU, +0.6
FXM, +0.3
FXF, +0.3
FXY, +0.3
FXC, +0.2
ICN, +0.0
Indonesia, IDX, Thailand, THD, Russian, RSX, Australia, EWA, and KROO, New Zealand, ENZL, Switzerland, EWL, Japan, EWJ, JSC, Canada, EWC, CNDA, The UK, EWU, and South Africa, EZA, all rose strongly on rising world currencies.  

2) … European Financials, EUFN, European Shares VGK, such as Spain, EWP, and EWI, rose as news leaked that European Council President Herman Van Rompuy orchestrated a new seigniorage aid package for Greece and moves toward a European Fiscal Union  … with IMFcontributing and banks rolling over some debt and writing off other debt as the European Leaders met in summit and effected a default of Greek debt as Mr. Van Rompuy assures “Private sector involvement will be limited to Greece, and Greece only.”.

Ambrose Evans Pritchard relates: “Europe’s leaders have grasped the nettle. Faced with a spiralling bond crisis in Italy and Spain and the greatest threat to the EU project for 50 years, they have ripped up their bail-out strategy and and taken a large stride towards a “liability union”.
I ask since Greece has lost its debt sovereignty and relies upon seigniorage, that is moneyness, from European Leaders, will it not have to eventually sacrifice its fiscal authority, that is its fiscal sovereignty?  

Today Herman Van Rompuy lead the Eurozone in taking The Big Step to Fiscal Union and laid the foundation for the rise of The Sovereign and The Seignior whose word, will and way will establish European economic governance as well as seigniorage in the Age of Deleveraging and Neofeudalism.

Mr Pritchard continues “Germany has dropped its vehement opposition to debt sharing and crossed the line in the sand towards fiscal federalism. It has agreed to turn the eurozone’s €440bn bail-out fund (EFSF) into what amounts to a European Monetary Fund, and arguably into an EU Treasury in embryo.”

The EFSF will be allowed to “intervene in the secondary markets”. It may fund “recapitalisation of financial institutions through loans to governments including in non programme countries”, code for Italy and Spain. The full weight of the German-led creditor bloc will stand behind south Europe’s banking system.

The wording lets the EFSF intervene pre-emptively to cap Spanish and Italian bond yields, whatever the cost of moral hazard. These countries can therefore piggy-back on the AAA credit rating of the EMU core. This was the crucial measure needed to calm nerves after 10-year Italian and Spanish yields punched through the systemic danger line of 6pc last week. Global markets surged as the details of the EU statement leaked.

Chancellor Angela Merkel said the goal was to “go to the root of the problems”, but she may not find it easy to secure political assent for such sweeping concessions from her own parliament. The accord is a spectacular volte-face. Her mantra until now has always been that “collectivisation of risks” would be a grave error.

The terms overstep a resolution passed by the Bundestag limiting how far she could go in committing Germany to any form of transfer union or pooling of debts. The use of the EFSF as a fiscal fund without treaty authority further complicates a ruling by the German constitutional court on the legality of the bail-outs expected in September. Such changes to the EFSF will require ratification by each of the EU’s 27 parliaments. It may require an amendment to the Treaties, greatly raising the bar in Germany.

EU officials hope that a debt rollover plan for Greece can be limited to a short technical default.

The ECB has backed down on its threat to reject Greek bonds as collateral. The formula will not be extended to Portugal and Ireland. It is understood that rating agencies will hold fire for the sake of global stability. However, there is no disguising that a major taboo has been broken, even if French leader Nicolas Sarkozy continued to insist that Greece would pay “all its debts”. Florian Toncar, deputy chief of the Free Democrats (FDP) in Mrs Merkel’s coalition said it was “unthinkable that a state in default could remain in monetary union”.

Questions abound. The EFSF is not yet big enough to handle the threat facing southern Europe. “To be credible, the EFSF needs to be proportional to the scale of contagion: we think €2 trillion is needed,” said Silvio Preuzzi at RBS. “We are not yet ready to say this is the full stop that ends the crisis.”

Europe’s economic recovery is sputtering out. Markit’s PMI surveys for the eurozone in July showed a preciptious fall to a 23-month low, with “deeper contraction” in the southern bloc. Howard Archer from IHS Global Insight said eurozone growth is “in serious danger of grinding to a halt”.

The risk is that Spain and even Italy tip back into recession, with knock-on effects for their debt trajectories. The root of Europe’s debt crisis is the gap that has built up over 15 years between North and South, which itself reflects the disparate characters of these countries. This economic chasm cannot be bridged by bail-out funds or loans guarantees.”

Gabriele Steinhauser of The Associated Press reports:”The eurozone countries and the International Monetary Fund will give Greece a second bailout worth euro109 billion ($155 billion), on top of the euro110 billion already granted a year ago. Banks and other private investors will contribute some euro37 billion ($53 billion) to the rescue package by either rolling over Greek debt, swapping it for new bonds with lower interest rates or selling the bonds back to Greece at a low price. The eurozone will provide some form of guarantees to the new Greek bonds rated at “selective default,” so that Greek banks will be able to continue accessing liquidity support from the ECB”

3) … US Treasuries, TLT, EDV, ZROZ, traded lower.

4) … Commentary.
An inquiring mind asks: “Will President Obama declare Martial Law in the event of an impasse on the debt ceiling?

European Sovereign Debt Is Too Big To Repay … All Europeans Must And Will Become One, Serfs Living In Debt Servitude

July 20, 2011

Report on the Euro and European Financials for July 20, 2011

1) … Juergen Baetz and Angela Charlton of the  Associated Press report from Berlin France, Germany in last ditch crisis talks, the eurozone’s economic powers are struggling to agree on a new debt crisis plan to present at an emergency EU summit, with Germany downplaying calls from France and Brussels for a big announcement that could boost market confidence and contain the turmoil. French President Nicolas Sarkozy was flying to Berlin on Wednesday afternoon in an apparent last-minute bid to strike a deal with Chancellor Angela Merkel on some kind of new aid package for Greece. European Commission president Jose Manuel Barroso said “nobody should be under any illusion, the situation is very serious.” He said that at the very least, leaders need to present how they will make Greece’s debt sustainable, under what terms private creditors will have to contribute to a new bailout for the country, and what new powers to give to their bailout fund. European leaders have faced criticism for their slow, piecemeal efforts to stem the debt crisis. The IMF urged European leaders to act more boldly, warning that there is “no consistent roadmap ahead” and that this could produce “possible significant regional and global spillovers.”  Merkel has opposed a restructuring of Greece’s debt that would force losses upon private sector creditors as well as any notion of creating eurobonds, debt that links different countries together.

The first would see the eurozone’s bailout fund finance a buyback of Greek government bonds at their current distressed prices, paired with guarantees that the remaining bonds would be repaid. That option would give the Greek state the biggest short-term relief, but may be the most expensive for the eurozone.The eurozone would not only have to fund the buybacks and repayment guarantees, but the paper says they would likely be seen as a default by rating agencies. That would force the eurozone to come up with the liquidity support for Greek banks that would be cut off from the European Central Bank’s financial life support.

The second option reverts to a proposal made by French banks several weeks ago. Banks would reinvest part of the money they collect from maturing Greek bonds into new bonds with long repayment deadlines.

However, that proposal would still trigger a “selective default” rating, requiring liquidity and capital support for Greek banks. It would provide significant short-term relief for Greece, the paper says, but should come with lower interest rates and longer maturities for the eurozone loans.

The third option is the only one that would avoid a default rating, but will likely run into huge opposition from banks that don’t hold Greek bonds. It proposes a tax on the financial sector to recoup part of the money the eurozone will have to lend Greece under the second bailout. However, it would only result in small relief for Greece.

I ask will there be a big agreement or a big event? I believe the latter, not the former.

Open Europe reports the IMF called for greater fiscal union yesterday, with Antonio Borges, Director of the IMF’s European department, saying, “To put the crisis behind, we need more Europe, not less. And we need it now.” An IMF report released yesterday called for “decisive action” on the crisis, warning that without a solution the crisis could cause problems for the global economy. IMF staff also called for the temporary eurozone bailout fund, the EFSF, to be used to purchase government bonds directly and to recapitalise banks. FT Deutschland reports that tomorrow’s summit will consider introducing a flexible credit line to the EFSF, which could issue loans to Spain and Italy outside of a full bailout agreement, as well as an increase in the size of the bailout fund

Open Europe reports Ewald Nowotny, Governor of Austria’s Central Bank, caused Greek two-year borrowing costs to jump nearly 5% yesterday when he suggested that a short-term “selective default” by Greece might not have “major negative consequences” – the first time a member of the ECB Governing Council has broken rank on the issue.

Open Europe reports Spain managed to auction €4.45bn of short term debt yesterday but at significantly higher costs, with the borrowing cost on twelve-month debt 1% higher compared to last month. Open Europe’s Raoul Ruparel is quoted in the Telegraph suggesting that contagion fears may be changing Italian and Spanish views on private sector involvement in a second Greek bailout. Open Europe’s finding that the ECB has an exposure of €444bn to struggling eurozone economies is cited by Kurier.

Open Europe reports Writing in the FT, columnist Alan Beattie argues that the “risk to [the IMF’s] reputation is beginning to outweigh the benefit from its presence” in Greece, and that “the possibility that the fund will disengage from Greece is increasingly under discussion in Washington. The IMF is supposed to be there to smooth over liquidity problems, not to pour good money after bad by lending to insolvent governments. If the eurozone wants to follow a boneheaded rescue strategy, let it pay for it.”

Wall Street Journal reports The Spanish government wasted little time dismissing the results of last week’s EU stress tests, which gave failing grades to five Spanish banks. And perhaps Madrid can be forgiven a little indignation at this stage, having disclosed far more about its banking system than the rest of the European Union. German state-controlled lender Helaba, for example, would probably have joined the Fail Club had the bank allowed its results to be published. Spain’s savings banks, the cajas,remain riddled with serious problems, meaning their lenders in Germany, France, Britain, the U.S. and beyond could have serious problems as well.

2) … International Forecaster relates collapse unfortunate but inevitable. The problems in Europe are never ending. The solvent countries are discovering what we discovered a year ago May. The cost of the six-country bailout we projected at $4 trillion. A month ago we increased that to $4 to $6 trillion. When we said $4 trillion Germany said $1 trillion. This past week they said $3.5 trillion. We wonder why it took them so long to catch up. As of this writing the Greeks have signed a bailout deal but the lenders still do not know what they want to do. They are finally reaching the realization that they cannot be serviced never mind be repaid. You can cut wages and spending 40% or 50% and not expect revenues to fall.

At least 7,000 top-rated municipal credits would have their ratings cut if the U.S. government loses its Aaa grade, Moody’s Investors Service said. An “automatic” downgrade affecting $130 billion in municipal debt directly linked to the U.S. would occur if the federal level is reduced, Moody’s said yesterday in a report.

Additionally, top-rated securities with no direct links to the national government will be reviewed for similar action.

Municipal debt including mortgage-backed bonds secured by the U.S. or agencies such as Fannie Mae and Freddie Mac, would be trimmed with the federal government, Moody’s said. It didn’t provide a total value for other state and local credits that may be affected, including housing authorities and nonprofits.

“Between now and the end of July, we’re going to evaluate all of those issuers using the same quantitative metrics that we have developed,” Naomi Richman, Moody’s managing director of public finance, said yesterday by telephone from New York about the indirectly linked securities.
“In the event that the U.S. government is downgraded, we won’t automatically downgrade those,” she said. “We’ll do a full review that we would normally do on a state rating.”

Moody’s put the U.S. rating under review as talks stalled in Washington on raising the government’s $14.3 trillion debt limit. Democrats including President Barack Obama want to raise taxes to curb the national deficit while congressional Republicans have sought deeper spending cuts.

The company rates 15 states at Aaa. It also gives top marks to 440 local governments, 100 state housing bond programs, 43 higher-education and nonprofit institutions, a like number of state revolving-fund bond programs, and the Tennessee Valley Authority and the Bonneville Power Administration.

Issuers that are partially dependent on the federal government, such as states receiving Medicaid matching funds, also will be reviewed for vulnerability. Medicaid is a health- care program for the poor that is jointly funded by the states and the U.S. Moody’s said Aaa-rated states on average rely on the federal government for a quarter of total spending.

3) … The world is passing through peak credit as is seen a number of metrics such as in the 300% of US Treasury Bonds, TMF, topping out.

The 10 30 Yield Curve Daily, $TNX:$TYX, is bottoming out, suggesting that interest rates will be heading higher.

The chart of the day is that of Banks, KRE, which ominously manifested a long legged doji in a bear cross.

The failure of the seigniorage of neoliberalism, and the exhaustion of quantitative easing is seen in the ratio of the gold mining stocks relative to the 30 Year US Treasuries, GDX:EDV, manifesting the entrance into an Elliott Wave 3 Down with an evening star doji; these always make market turns together. The chart of this ratio suggests that both will be turning lower once agian.

The chart of bonds, BND, is clearly topping out.

The ratio of BLV relative to LQD, BLV:LQD, is entering an Elliott Wave 3 of 3 down.

Chile, ECH, once considered an excellent example of the Milton Friedman Free To Choose Neoliberalism regime, turned lower again today and Networking shares, IGN, turned lower again today.

4) In other news
Zero Hedge documents China’s Mysterious Multi-Trillion Shadow Banking System.

Andrew Taylor of the Associated Press reports Obama Calls Democratic Leaders to White House. President Barack Obama summoned top Democratic lawmakers back to the White House Wednesday to resume negotiations on averting a potentially crippling default, as attention focused on an emerging bipartisan budget plan.

5) …  Commentary: European Sovereign Debt Is Too Big To Repay
Steven Erlander and Rachael Donaldson of the New York Times report that “Jean Claude Trichet will not accept any kind of default or credit event over Greece. What he wants the analyst says is a comprehensive solution that protects the central banks balance sheet from a markdown to Greek debt and recapitalizes commercial banks exposure to Greece, inevitably with taxpayer money. But the need to inject more public money is what Germany and its allies do not want to do, because critics charge that recapitalization would represent a transfer of funds to undeserving (read socialist) countries.”   

Greeks cannot become Germans. Socialists cannot become libertarians. All European must and will become one, serfs living in debt servitude.  Thomas L. Friedman writing in New York Times editorial Can Greeks Become Germans? communicates that Socialism in Greece produced a government and economy characterised by patronage and pork,

Debt which served as the seigniorage of Neoliberalism cannot be repudiated; it must be and will be applied to every man, woman and child on planet earth.

Neoliberalism’s democracy and socialism’s ills will now be replaced with neofeudalism‘s diktat and austerity.

Out of Gotterdammerung, a clash of the gods, that is the rating agencies and the ruling elite, there will come an economic collapse, characterised as a head wound, that is a stroke to the world’s most important institution of finance, investment, commence and trade.  Out of this casos, will come order: a European Chancellor, the Sovereign, will rise to power. It will be one for all and all for one; one governor and one government. This One Leader will establish a One Europe Government, based upon regional framework agreements, where state leaders waive national sovereignty.

The Sovereign, will be accompanied by the Seignior, who will provide a new seigniorage, which will be more political than economic. The word, will and way of these two will provide the New Seigniorage, that is the new moneyness.  In as much as Greece has lost its debt sovereignty, it must and will sacrifice its fiscal authority. Greek socialism stands as a white washed tomb full of dead men’s bones and a prosperity that came through a currency union.

Symbols: TMF, KRE, EUFN, FXE, MUB, TMF, KRE, GDX, EDV, BND, BLV, LQD, ECH, IGN

Keywords: Transfer Union, Peak Credit,  Ewald Nowotny, Sovereign Crisis, Sovereign Debt Crisis,  Gotterdammerung, Fiscal Union, One Euro Government, European Economic Governance, The Sovereign, The Seignior, Neoliberalism, Neofeudalism,  Global Economic Collapse, Municipal Debt, Jean Claude Trichet, Socialism,

Is A Financial Dictatorship Coming To Rule Europe As Well As The US?

July 19, 2011

News and commentary on the Euro and European Financials for July 19, 2011

Gabi Thesing and Sandrine Rastello of Bloomberg report IMF sees `serious risk of contagion’ even if Greece can avert debt default and European leaders are at odds with one another and with the ECB over demands by Germany and Finland that private investors bear some of the burden of a new Greek bailout.

Ambrose Evans Pritchard of The Telegraph reports Only Germany can save the EMU as contagion turns systemic. Europe’s leaders have finally run out of time. If they fail to agree on some form of debt pooling and shared fiscal destiny at Thursday’s emergency summit, they risk a full-fledged run on South Europe’s bond markets and a disorderly collapse of monetary union. This as German Chancellor Angela Merkel warned there will be no ‘spectacular step’ at the EU meeting on Thursday.  

Allister Heath in City AM argues A giant euro-bond would transfer the default risk from private institutions stupid enough to trust Club Med governments … to all European taxpayers.

Open Europe editorializes The name’s Bond … Eurobond. The Economist has an interesting article in this week’s edition which partly endorses the idea of ‘eurobonds’ (although with the qualification that they are politically unworkable right now).

The magazine argues: “One useful means of allaying the panic might be for euro-zone countries to issue part of their debt as joint bonds. Jointly guaranteed bonds sold to raise money for the current bail-out funds are being eagerly snapped up by investors.

This may make financial sense. But the near-insurmountable obstacle is, as always, political: there is huge resistance to what would become a more overt ‘transfer union’. In a group of democracies, where big decisions are taken by unanimity, consensus is hard to come by and takes time. Hence, leaders have acted only in the face of impending disaster, and then with half-measures. Markets operate on a faster timetable. They will not wait for Europe’s leaders, like Churchill’s Americans, to do the right thing after having exhausted all the alternatives.”

We would contend that, apart from the obvious drawbacks in terms of democratic legitimacy, the ‘eurobonds’, at least in their current form, do not represent financial sense either (leaving aside for the moment the fact that taxpayers shouldn’t be funding governments they can’t democratically control).

The gist of the current proposal is that part of a country’s debt would be financed by standard sovereign debt and the rest would be covered by eurobonds, around a 60%-40% split (an idea which has been proposed by Eurogroup chief Jean-Claude Juncker amongst others). However, its highly questionable whether this would be sustainable.

At our debate in London last week, Spanish MP Álvaro Nadal, shadow Economy spokesman for the Partido Popular, which might well be in government soon, commented that “for [Spain] eurobonds would be suicidal” as they would drive up the cost of the nationally financed portion of Spanish debt. He also warned of moral hazard, saying:  “The current eurobonds are very ill-designed. We need a method to encourage fiscal discipline but they are not it”.

Handelsblatt economics editor Daniel Goffart made similar comments last December, suggesting that, “On balance, financing costs would not decrease” as the extra risk premium (higher interest rate) which investors would want on the nationally denominated debt, would outweigh the savings from the lower borrowing costs on the eurobonds. And it would not only be struggling eurozone countries that would see higher national borrowing costs, but also the likes of Germany, who would be explicitly guaranteeing eurozone debt, via eurobonds. Investors would be likely to demand a premium for this potential additional burden on Germany’s national finances.

There’s also the fear that this proposal puts the eurozone on a slippery slope. Once some debt is guaranteed by everyone and the cost of financing national sovereign debt starts increasing, there could be calls for a larger and larger percentage of debt to be in the form of eurozone-guaranteed eurobonds. Some might say this is a speculative fear but, given where we are now after the original bailout decision, it’s clear that nothing should be unthinkable when it comes to the eurozone.

Last but not least, there is also the concern that eurobonds are, in fact, illegal under the EU treaties. Such fleeting issues have been circumvented in the past (bailouts), but it may be even more overt this time around. German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have already made strong statements on this topic. They were backed up this weekend by Bundesbank President Jens Weidmann.

Last December, Merkel made her position perfectly clear saying: “It is our firm conviction that the treaties do not allow joint eurobonds, that is no universal interest rate for all European member states. Competition on interest rates is an incentive to respect stability criteria.” Although we all know that similar comments were made in regards to the bailouts, we hope Merkel and her government have learnt some lessons over the past year about how some decisions can snowball and take you to a place you don’t necessarily want to go (second bailout, talk of permanent fiscal transfers, political unrest, a central bank bleeding credibility etc etc).

We don’t think eurobonds will be on the table at this week’s summit but expect the debate to continue back and forth in the weeks and months to come.

PPP Survey Shows Bachmann Ahead. Tea-party favorite Rep. Michele Bachmann (R., Minn.) took first place – just barely — in Public Policy Polling’s new national survey of Republican primary voters, besting former Massachusetts Gov. Mitt Romney 21% to 20%.

David Espo of the Associated Press reports Debt hope: Obama praises ‘Gang of Six’ plan President Barack Obama and a startling number of Republican senators lauded a bipartisan deficit-reduction plan Tuesday that includes $1 trillion in higher taxes, raising hopes of a last-minute compromise to repair the nation’s finances while averting a government default. Wall Street saluted as well.

My commentary is the same as yesterday.

An Iron Chancellor and a Federal Union will arise in Europe out of a soon coming global financial and debt collapse.

Mike Mish Shedlock reports Sovereign Debt Yields Soar; and recently questioned  “Nanny tate” common bond solution to solve crisis? stating the battle lines are forming for and against “nanny state” common bond solutions that would have German taxpayers covering the liabilities of other countries in a so-called “transfer union”. Automatic Earth reports The Emergence of Europe as a Union

The sovereign debt crisis will soon morph in to a sovereign liquidity crisis, which will result in a seigniorage crisis, that is a moneyness crisis, with the head of humanity’s most important institution that is investment, banking, commerce and trade, suffering a mortal wound, that is a stroke.   

A Chancellor, whose power and authority will come from Regional Framework Agreements, as called for by the Club of Rome in 1974, which waive national sovereignty, will rise to rule Europe.  His demeanor will be fierce and his way strong.  Hence he will be the Iron Chancellor, as his rule be like that of Charlemagne.  He will be restoring what could easily be called a Revived Roman Empire.  He will be accompanied by a continental banker. The word, will and way of the Sovereign and the Seignior, will be the law of the land.  Respect for and fear of these two, will provide seigniorage, that is moneyness, as Neofeudalism quickly replaces Neoliberalism.

The Chancellor will have a North American continent counterpart in President Obama, as the debt ceiling dilemma may go unsettled, or US Treasuries may fail to auction, or or a rating agency declares a US Default, and he declares martial law and becomes the law of the land dealing with fiscal issues and seigniorage.


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