Financial market report for August 26, 2011
1) … World stocks, ACWI, rose 1.2% on the Fed Chairman’s hyperbole and doublespeak.
The Associated Press reports Bernanke announced no new economic stimulus measures during his speech at a conference in Jackson Hole, Wyo. He left open the possibility of more action by the Fed if another recession looks likely. Indexes fell sharply as the speech was released and it became clear that Bernanke was not promising additional support of the economy. In his speech, Bernanke focused on the long-term strengths of the U.S. economy, saying that they “do not appear to have been permanently altered by the shocks of the past four years.” That shot of optimism helped lift markets. “In the American economy, the only thing that’s really lacking right now is confidence,” said David Kelly, chief market strategist at JPMorgan funds. Kelly said the Fed has few remaining options to help the economy, but action by the central bank might not be necessary. “People who understand the limits of monetary policy also understand that the economy has what it takes to grow,” Kelly said. Other analysts said that Bernanke’s speech also helped lift investor sentiment. Liz Ann Sonders, chief investment strategist at Charles Schwab, said Bernanke’s speech was an “acknowledgement that the Fed is not out of tools and that they stand ready” to act if needed.
2) … It’s the Last Stand for Greek Banks Greece Forced to Tap Emergency Fund.
The European Financials, EUFN, traded unchanged as, The Telegraph reports Greece has been forced to activate an obscure emergency fund for its banks because they are running short of collateral that is acceptable to the European Central Bank (ECB). In a move described as the “last stand for Greek banks”, the embattled country’s central bank activated Emergency Liquidity Assistance (ELA) for the first time on Wednesday night. Raoul Ruparel of Open Europe told The Telegraph: The activation of the so-called ELA looks to be the last stand for Greek banks and suggests they are running alarmingly short of quality collateral usually used to obtain funding.” He added: “This kicks off another huge round of nearly worthless assets being shifted from the books of private banks onto books backed by taxpayers. Combined with the purchases of Spanish and Italian bonds, the already questionable balance sheet of the euro system is looking increasingly risky.
The Wall Street Journal reports Greek banks’ liquidity is suffering as nervous clients withdraw savings. Greece’s worsening slump is threatening to compound another risk for the country: the steady withdrawal of money from Greek banks. In the last 20 months, the country’s banks have suffered an unprecedented withdrawal of customer deposits. Tens of thousands of Greeks—from the well-heeled to the less well-off—have moved their savings out of the country or stashed the cash in safe-deposit boxes or under a mattress, bankers say. The consequence for many Greek banks is a growing shortage of liquidity that is increasing their reliance on emergency funding from the European Central Bank and forcing them to further cut lending.
Mike Mish Shedlock reports Dash for cash sends short-term rates negative again. Note that 3-month T-Bills are yielding a negative .01% as demand for safety has shoved aside any concern to make a profit. However banks pay .10% for FDIC insurance. Thus banks are losing .11% unless they charge fees. BNY Mellon has done just that, charging .13% for large deposits. That large deposits keep flowing in from Europe says stress in European banks continues to simmer under the surface.
And Mike Mish Shedlock reports Capital Flight Proves Confidence in European Interbank System has Collapsed. Capital flight from European banks has now reached such a state that for one undisclosed bank needed emergency funding last week for a mere $5 million. Previously, the ECB stepped in to provide $500 million in emergency liquidity measures to non-disclosed banks. As money flees Europe, it lands in US banks that do not know what to do with it. Capital flight has led to negative interest rates in the US.
And he continues in his article Capital Flight Proves Confidence in European Interbank System has Collapsed citing Jean-Pierre Chevallier writing on Business économiste monétariste behavioriste discusses the stet-up in his latest post ECB: no more bets! The situation is out of control in the euro zone, as I have been writing it for a while. The interbank market does not work because euro-zone banks managers have lost confidence in other banks. So they keep their cash in US$ rather than lending it to other banks that need it as they would in normal times: ECB had loaned $5 million to a bank on August, 25. ECB had previously loaned $500 million (USD) on August 17. This caused a flash-crash in U.S. markets. The problem is serious. Chevallier notes that the paltry amount of money involved “shows that the interbank system is completely blocked”. Trust in European banks is shot, and by hiding the banks needing emergency liquidity funding, distrust spreads to all banks in the system. Then again, why shouldn’t distrust spread? The entire global financial system is bankrupt. Loans have been made that cannot and will not be paid
3) … Stocks rising included XME, OIH, IEZ, SLX, XRT, JKH, IWO, RZG, HHH, MOO, PSCD, PNQI, PSCI, QTEC, FDN, PSCE, XBI, GEX, COPX, PSCT.
4) … Map of food inflation riots around the world.
Business Insider reports Most of the inflation riots and protests are concentrated in the MENA (Middle East and North Africa) region, but as you can see on the Google map, they are starting to migrate into Europe, as well as China and India.
5) … Daily Bell reports on The deficit and the Tragedy Of The Commons.
6) … Paul Krugman says Wolfgang Schäuble was guilty of fiscalisation, the attempt to pass off a private-sector debt crisis as a public-sector crisis.
Euro Intelligence reports that Paul Krugman has a go at Wolfgang Schäuble, who had claimed that the causes of this crisis, and in 2008, was the rise in public sector debt. Krugman says this is nonsense. The only country where this applied in Greece, but the financial crisis is mostly about private sector debt. He says the fiscalisation of the crisis is doing untold damage on both sides of the Atlantic
6) … Neoliberalism and neoauthoritarianism are polar opposites.
Neoliberalism was characterized by wildcat finance, a Doug Noland term. Neoauthoritarianism is characterized by wildcat governance as Ambrose Evans Pritchard reports Germany fires cannon shot across Europe’s bows. German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds and writes Bundesbank questions legality of EU bail-outs. Germany’s Bundesbank has issued a blistering critique of EU bail-out policies, warning that the eurozone is drifting towards a debt union without “democratic legitimacy” or treaty backing.
Neoliberalism was characterized by leverage, economic expansion prosperity. Neoauthoritarianism is characterized by deleveraging, economic contraction and austerity. WSWS.org reports Michigan legislature requires cities and schools to cut health care payments. In its first day back in session, the Michigan legislature passed anti-worker legislation on health care and welfare. And WSWS.org reports Economic growth stalls amidst debt crisis, austerity. Dr. Tom Hoenig, retiring from the helm of the Kansas City Fed and almost 40 years of service at the Federal Reserve is quoted by Doug Noland: “If you go back and think about it, we have gone through well over a decade as a nation, the United States and maybe other parts of the world have systematically consumed more than they produce. And so we’ve been able to do that by increasing our debt, increasing leverage. Increasing leverage of the consumer, increasing leverage and debt of states, increasing leverage of the federal government – again, increasing leverage of our financial institutions. Living, in a sense, beyond our means. So there’s not going to be an overnight solution to that. We can pour liquidity into the market, yes, but that doesn’t really solve the debt problem and the need to rebalance our national and our international economies. So what about the long run?” … “What you’re doing is keeping interest rates very low. You’re encouraging debt over time to help demand. But all that does, then, is help continue to build more debt for the future. Those are not solutions that will get us to where we need to be in the long run.”
Neoliberalism was characterized by the expansion of all kinds of debt, BND. This included junk bonds, JNK, mortgage backed bonds, MBB, levered buyouts, PSP, US Treasuries, TLT, emerging market bonds, EMB, long maturity corporate bonds, BLV, short duration corporate bonds, LQD, international corporate bonds, PICB, and world government bonds, BWX. Neo Authoritarianism will characterized by debt servitude. To quote again from the Mike Mish Shedlock article Capital Flight Proves Confidence in European Interbank System has Collapsed “Citing Jean-Pierre Chevallier writing on Business économiste monétariste behavioriste discusses the stet-up in his latest post ECB: no more bets! The situation is out of control in the euro zone, as I have been writing it for a while. The interbank market does not work because euro-zone banks managers have lost confidence in other banks. So they keep their cash in US$ rather than lending it to other banks that need it as they would in normal times: ECB had loaned $5 million to a bank on August, 25. ECB had previously loaned $500 million (USD) on August 17. This caused a flash-crash in U.S. markets. The problem is serious. Chevallier notes that the paltry amount of money involved “shows that the interbank system is completely blocked”. Trust in European banks is shot, and by hiding the banks needing emergency liquidity funding, distrust spreads to all banks in the system. Then again, why shouldn’t distrust spread? The entire global financial system is bankrupt. Loans have been made that cannot and will not be paid “
Love grows cold in the Age of Deleveraging. Robert Johnson of the Business Insider relates The Civil Justice System in San Francisco is collapsing. Judge Feinstein says San Francisco will In the face of extreme budget cuts the San Francisco Superior Court announced Monday it’s reducing staff by more than 40 percent and closing 25 courtrooms. Jesse McKinley of the NYT reports Cutbacks stem from a $350 million reduction in financing for the state’s judicial branch, the largest cut in California’s history, in the 2011-12 budget, part of a penurious spending plan endorsed by Gov. Jerry Brown, who has made taming California’s money problems a priority. Gil Duran, a spokesman for the governor, said the cuts were unfortunate, but were part of “immense fiscal challenges that require sacrifice at every level of state government.” As constitutional officers, judges cannot be laid off. But as anyone who has ever entered a courtroom can attest, much of the heavy lifting is done by the support staff. “It’s not that we don’t have the judges to do the work, we do,” said Judge Feinstein, the daughter of Senator Dianne Feinstein. “We won’t have the clerical staff to back us up. We won’t have the papers.” Dozens of judges and court officers had written to Mr. Brown, a Democrat, to say that the cuts would “render precarious our democratic ideal of justice for all.” And the cutbacks will lead to all manner of other effects, lawyers say.
7) … Milton Friedman Wrote A Book And Martin Luther King Had A Vision … But Angela Merkel, Herman Van Rompuy, And Christine Lagarde Have A Common Statement.
Milton Friedman fathered the Free To Choose floating currency regime, which took the US off the gold standard, and liberated investors to a great spectrum of investments. Martin Luther King had a dream. Dr King Jr’s vision is now honored, with the establishment of the MLK Freedom Memorial, in Freedom Plaza which contains the Washington Memorial.
The actions of the US Congress in establishing financial deregulation with the repeal of the Glass Steagall Act, the US Federal Reserve in providing Quantitative Easing and ZIRP, Wall Street investment bankers and mortgage REITS securitization of subprime lending, US Treasury bonds, as well as GSE debt, and the Bank of Japan in providing one percent carry trade lending, further liberated investors providing total freedom of choice, to engage in wildcat investing, a Doug Noland term, to achieve great returns through leverage.
But the economic, investment, and political tectonic plates have shifted, where the world moved from Neoliberalism to Neoauthoritarianism. First in May, 2011, with the turn lower in stocks, and then with the flight of investors on Black Thursday, when they realized that a default union had formed in Europe, and then with Sarkozy Merkel communique for true European economic government, followed by Mrs Merkel’s statement that there will not be a breakup of the EU.
Liberty and Choice are a mirage in the Authoritarian Desert of the Real. Freedom and national sovereignty are principals of the bygone era of Neoliberalism. There are no longer sovereign individuals; rather the Diktat of sovereign leaders now governs.
Europe’s leaders are simply following the Authoritarian Imperative of 1974 Clarion Call of the Club of Rome. Mail Online reports Herman Van Rompuy stated that “countries can stand alone, is a lie and an illusion.” and EconomicPolicy Journal reports Christine LaGarde stated: “Europe needs a common vision for its future. The current economic turmoil has exposed some serious flaws in the architecture of the eurozone, flaws that threaten the sustainability of the entire project. In such an atmosphere, there is no room for ambivalence about its future direction. An unclear or confused message will add to market uncertainty and magnify the eurozone’s economic tensions. So Europe must recommit credibly to a common vision, and it needs to be built on solid foundations, including, for example, fiscal rules that actually work.”
The Authoritarian Imperative of the 1974 Clarion Call of the Club of Rome for regional economic government is operating like a magnet drawing iron elements together. Mrs Merkel of Germany and Mr. Sarkozy of France have heard and heed the Club’s Call by proposing a “true European economic government. This will be one of ten operating governments known collectively as the Ten Toed Kingdom of regional economic government.
Soon an Iron Chancellor, The Sovereign will rise to rule the Eurozone. His power and authority will be like that of Charlemagne. His kingdom will be very much a revived Roman empire.
The Sovereign will come in like a lamb and proceed like a lion. His way must be fierce, as institutional holdings such as nations’ central bank holdings, utilities, and other infrastructure, are forfeited, as well as fiscal authority, is transferred, from the periphery, that is the PIIIGS, to the core, that is Brussels, Paris and Berlin.
The Ten Toed Kingdom cannot and will not survive as it is comprised of non compatible building materials of the iron of diktat and the clay of freedom and liberty. Eventually, the Sovereign will rise to power globally and install global totalitarian rule and establish a one world government, a one world bank. His Seignior, the top dog banker who takes a cut, will provide global seigniorage, that is global moneyness.